RegeneRating mobility
2017 AnnuAl RepoRt
CONTENTS
Corporate directory ................................................................................................................................... 2
Directors’ report .......................................................................................................................................... 3
Auditor’s independence declaration ..................................................................................................... 14
Consolidated statement of profit or loss and other comprehensive income ..................................... 15
Consolidated statement of financial position ........................................................................................ 16
Consolidated statement of changes in equity ...................................................................................... 17
Consolidated statement of cash flows ................................................................................................... 18
Notes to the financial statements ........................................................................................................... 19
Directors’ declaration .............................................................................................................................. 42
Independent auditor’s report .................................................................................................................. 43
Corporate governance statement.......................................................................................................... 47
ASX additional information ...................................................................................................................... 54
Annual Report for the Year Ended 30 June 2017
1
CORPORATE DIRECTORY
Board of Directors
Dr Stewart Washer
Executive Chairman, appointed 7 April 2014
Mr Paul Anderson
Managing Director, appointed 21 March 2006
Mr Matthew Callahan
Non-Executive Director, appointed 30 May 2006
Professor Lars Lidgren
Independent Non-Executive Director, appointed 17 December 2007
Mr Qi Xiao Zhou
Non-Executive Director, appointed 2 November 2012
Company Secretary
Mr Simon Robertson
Registered Office & Principal Place of Business
Building 191, Murdoch University
South Street
Murdoch WA 6150, Australia
Share Register
Automic Registry Services
Level 2, 267 St Georges Terrace
Perth WA 6000, Australia
Auditor
PKF Mack
4th Floor, 35 Havelock Street
West Perth WA 6005, Australia
Solicitors
Gilbert + Tobin
Level 16, Brookfield Place Tower 2
123 St Georges Terrace, Perth WA 6000, Australia
Bankers
Westpac Banking Corporation
Securities Exchange Listing
Australian Securities Exchange
ASX code: OCC
Website
www.orthocell.com.au
Annual Report for the Year Ended 30 June 2017
2
DIRECTORS’ REPORT
The directors present their report, together with
the consolidated financial statements, on the
consolidated entity (referred to hereafter as the
'consolidated entity') consisting of Orthocell
Limited (referred to hereafter as the 'Company' or
'parent entity') and the entity it controlled at the
end of, or during, the year ended 30 June 2017.
1. Directors
The following persons were directors of Orthocell
Limited during the financial year and up to the
date of this report, unless otherwise stated:
Dr Stewart Washer
Executive Chairman
Mr Paul Anderson
Managing Director and
CEO
Mr Matthew Callahan Non-Executive Director
Professor Lars Lidgren
Independent Non-
Executive Director
Mr Qi Xiao Zhou
Non-Executive Director
Directors have been in office since the start of the
financial year to the date of this report.
Executive Chairman
Dr Stewart Washer has 25 years of CEO and Board
experience in medical and agrifood biotech
companies. He is currently the Executive Director
of Zelda Therapeutics Ltd (ASX:ZLD) in the
medicinal cannabis space, Founding Chairman
and current Director of Cynata Therapeutics Ltd
(ASX:CYP) who are developing global stem cell
therapies and Chairman of Minomic International
Ltd with a novel approach to cancer diagnosis
and treatment. He is also a founder and
consultant to AusCann Ltd (ASX:AC8), the largest
medicinal cannabis company in Australia.
Stewart has previously worked in life science Fund
Management with BioScience Managers in
Australia and the Nestlé Fund Inventages.
Stewart has held a number of Board positions in
the past, including Chairman of Hatchtech Pty Ltd
that was sold in 2015 for A$279m and was a
Director of iCeutica that was sold to a US
Pharma. He was also a Senator with Murdoch
University and was a Director of AusBiotech Ltd.
Current Directorships
Cynata Therapeutics Ltd (ASX: CYP)
Zelda Therapeutics Ltd (ASX:ZLD)
Previous directorships (last 3 years)
iSonea Ltd (ASX:ISN)
Immuron Ltd (ASX: IMC
AusBiotech Ltd
Managing Director
Mr Paul Anderson has over 20 years’ experience in
the medical device and regenerative medicine
fields with expertise in bridging the gap between
research and clinical practice in the
development of emerging medical technologies.
He also has extensive expertise in the
establishment of GMP manufacturing facilities
and scale-up activities for cell therapies and
biological medical devices, and the associated
regulatory filings.
Mr Anderson has a proven track record with over
15 years’ experience in CEO and board roles. His
intimate knowledge of the regenerative medicine
fields compliments his insight and know-how in
taking biological therapies from research to
clinical applications and market introduction.
Previous directorships (last 3 years)
Nil
Non-Executive Directors
Mr Matthew Callahan is a founding director of
Orthocell. He is also the founding CEO of iCeutica,
and a co-inventor of technologies that comprise
the SoluMatrix Fine Particle Technology™ for
improving the bioavailability of pharmaceuticals.
He has more than 20 years legal, licensing and
investment management experience and is a
director of Botanix Pharmaceuticals Ltd (ASX:BOT).
Mr Callahan has worked as investment director for
two venture capital firms investing in life sciences
and other sectors. He was General Manager and
General Counsel with an ASX listed patent
licensing company where he was responsible for
licensing programs that have generated over
$120 million in revenue.
Current directorships
Botanix Pharmaceuticals Limited (ASX:BOT)
Previous directorships (last 3 years)
Nil
Professor Lars Lidgren is an Independent Non-
Executive director of Orthocell who has authored
and co-authored over 250 original publications,
and has more than 150 patents/applications. He
Annual Report for the Year Ended 30 June 2017
3
DIRECTORS’ REPORT
was spokesman for Biomaterials in the Nordic
Orthopaedic Society, Chairman for the Swedish
National Knee Register, Director of the National
Board of Health and Welfare, Musculoskeletal
Competence Centre and member of several
editorial boards. Professor Lidgren initiated and
has led the UN ratified Bone and Joint Decade
and founded Scandimed, a global leading
company in bone cements and delivery. Professor
Lidgren is the inventor, founder and board
member of Bone Support, an emerging leader in
bone therapeutics.
Current directorships
GWS (Nasdaq First North: GWS)
Rethinking Care (Nasdaq First North: RTC)
Previous directorships (last 3 years)
Nil
Mr Qi Xiao Zhou has 16 years’ experience within
China as a senior business manager and
executive. Mr Zhou is the founding CEO of
Shenzhen Lightning Digital Technology Co Ltd, a
company focused on the manufacture and
distribution of electronic semiconductor since
2001. Mr Zhou has experience within the public
markets in Hong Kong, China and Taiwan and
brings to the Board a wealth of business
management and development experience. In
particular Mr Zhou has broad connections and
experience in the licensing of technologies into
the Asian region.
Previous directorships (last 3 years)
Nil
Directors’ interests
As at the date of this report, the interests of the
Directors in the shares and options of Orthocell
Limited were:
Shares
Dr Stewart Washer
Mr Paul Anderson
Mr Matthew Callahan
Prof Lars Lidgren
Mr Qi Xiao Zhou
490,411
6,981,970
10,219,059
964,091
5,996,241
Options &
Warrants
495,842
1,263,692
400,000
204,767
204,767
Company Secretary
Simon Robertson has held the role of Company
Secretary since 8 November 2012. Mr Robertson
gained a Bachelor of Business from Curtin
University in Western Australia and Master of
Applied Finance from Macquarie University in
New South Wales. He is a member of the Institute
of Chartered Accountants and the Governance
Institute of Australia. Mr Robertson currently holds
the position of Company Secretary for a number
of publically listed companies and has experience
in corporate finance, accounting and
administration, capital raisings and ASX
compliance and regulatory requirements.
Meetings of Directors
The number of meetings of the Company's Board
of Directors ('the Board') held during the year
ended 30 June 2017, and the number of meetings
attended by each director was:
Dr Stewart Washer
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
Dr Stewart Washer
Mr Matthew Callahan
Professor Lars Lidgren
Full Board
Attended
5
5
4
5
3
Held(1)
5
5
5
5
5
Remuneration Committee
Attended
2
2
2
Held(1)
2
2
2
(1) Held: represents the number of meetings held during the
time the director held office.
2. Principal activities
During the financial year the principal continuing
activities of the consolidated entity consisted of
the development and commercialisation of cell
therapies and related technologies.
3. Review and results of operations
The loss for the consolidated entity after income
tax amounted to $4,177,416 (30 June 2016:
$3,784,864).
Overview
Orthocell Ltd is a regenerative medicine
company dedicated to the development of an
important new class of tissue regeneration
medical devices, cellular therapies and growth
factors for the repair and regeneration of human
tendons, bone, cartilage and soft tissue defects.
Development to date has focused on two main
products:
Annual Report for the Year Ended 30 June 2017
4
DIRECTORS’ REPORT
•
‘CelGro®’ a naturally derived collagen
medical device for soft tissue repair currently in
clinical trials for use as an augment to the surgical
repair of tendons, peripheral nerves, bone and
articular cartilage; and
In February 2017, the Company released initial
positive safety and tolerability results for nerve
study demonstrating that the scaffold is safe and
has been well tolerated with no inflammatory
reactions or complications.
Autologous Tenocyte Implantation
•
(“Ortho-ATI®”) for chronic, treatment resistant
tendon regeneration.
CelGro is targeted to a variety of orthopaedic,
reconstructive and surgical applications and is
being readied for first regulatory approval in
Europe. Orthocell’s CelGro scaffold represents a
paradigm shift in soft tissue reconstruction and
exhibits a number of qualities that make it ideal
for use as a guided tissue reconstruction and soft
tissue repair device.
Orthocell’s Ortho-ATI is a unique regenerative
treatment that uses a minimally invasive, non-
surgical approach that uses each patient’s own
tendon-derived cells to stimulate tendon
regeneration and is delivered via ultrasound
guided injection under local anaesthetic.
Published data demonstrates that Ortho-ATI is a
durable disruptive technology facilitating the
healing of tendons which are resistant to existing
therapies.
Summary of key events
The Company has made significant progress in
the clinical development of its collagen medical
device platform technology and has advanced
regulatory applications for marketing
authorisation of CelGro.
Clinical studies in the areas of bone and tendon
repair have demonstrated and confirmed that
CelGro is a novel medical device with unique
characteristics and competitive advantages over
existing tissue repair scaffolds, particularly in the
areas of cell compatibility, tensile strength and
promotion of quality tissue in-growth and scar-less
repair.
In October 2016, the Company received ethics
approval for a human clinical study examining the
safety and effectiveness of its CelGro scaffold, to
be used as an augment to the surgical repair of
peripheral nerve injuries.
The company’s world leading cell therapy for
tendon regeneration, Ortho-ATI, was further
validated during the year with the announcement
in January 2017 of a research collaboration
agreement with DePuy Synthes Products, Inc
(“DPS”), a Johnson & Johnson Company for its
Ortho-ATI stem cell approach for the regeneration
of degenerate tendons and ligaments. The study
obtained ethics approval in October 2016, has
commenced recruitment and will be led by
Professor Allan Wang, current President of the
Australian Elbow and Shoulder Society, in
conjunction with Professor Ming Hao Zheng,
Division of Surgery, School of Medicine at the
University of Western Australia.
The Company continued the clinical
development of its minimally invasive cell therapy
for tendon regeneration receiving ethics approval
to conduct a study comparing surgery for severe
tennis elbow to Orthocell’s Ortho-ATI. The study is
being conducted by two of Australia’s leading
elbow surgeons and follows publication of
Orthocell’s positive pilot study results announced
in April 2015 in the prestigious American Journal of
Sports Medicine. Patient recruitment has
commenced and the study is designed to show
that a single non-invasive treatment of Ortho-ATI is
superior or equivalent to the more costly and
invasive surgical intervention for the repair of
severe, treatment resistant Lateral Epicondylitis.
This program will support the continued
demonstration of clinical efficacy and the cost
effectiveness of Ortho-ATI as a minimally invasive
injectable treatment for resistant tendon injuries of
the elbow.
On 27 February 2017, Orthocell announced the
publication of 2-year data for Ortho-ATI in
degenerate hip (gluteal) tendons in the
Orthopaedic Journal of Sports Medicine. The data
shows positive outcomes including reduced pain
and increased functionality out to 24 months
following Ortho-ATI. This paper further supports
Orthocell’s Ortho-ATI as a durable, long-term
Annual Report for the Year Ended 30 June 2017
5
DIRECTORS’ REPORT
solution for degenerate, treatment-resistant
tendons.
Orthocell’s regenerative cell therapy for cartilage
repair, Ortho-ACI® was included on the Australian
Register of Therapeutic Goods (ARTG). Orthocell’s
Autologous Chondrocyte Implantation (Ortho-
ACI) for cartilage repair and regeneration has
previously been approved for sale in Australia
pursuant to a TGA issued manufacturing license.
Inclusion on the ARTG marks a significant
milestone for the Company enabling the
commencement of the process for
reimbursement and the wider sale and distribution
of Ortho-ACI for cartilage repair and regeneration
within Australia, Hong Kong, Singapore and New
Zealand and other regions. This milestone also
represents the first cell therapy for cartilage repair
to be included on the ARTG.
During the year the Company received numerous
international patents for its world leading
regenerative medicine technologies. The patents
provide important protection of its technologies
as Orthocell prepares for registration and
commercialisation in global markets. A Singapore
patent was granted for CelGro relating to the
method of manufacture of novel bio-scaffolds to
aid in the surgical repair of soft tissue injuries such
as tendon, nerve, cartilage and bone, as well as
the delivery of cells to relevant surgical sites.
The Company also announced it had received a
European patent for its pipeline ‘Cell Factory’
technology that produces tissue specific growth
factors and bioactive proteins to enhance tissue
repair. This IP for cell factory concept is now
granted in two key jurisdictions – USA and EU.
The Company completed a $4 million capital
raise via the Placement of 10,000,000 fully paid
ordinary shares at an issue price of $0.40 per
share. The funds raised from the Placement (after
costs) will be used to progress the Company’s
portfolio of products and for working capital
purposes.
In January 2017, the Company received a
Research and Development (R&D) tax incentive
cash refund of $1,947,998 for the financial year
2015/2016. The R&D refund strengthened the
Company’s balance sheet and increased the
operational runway during a very active clinical
trial program for its collagen platform technology,
CelGro and cellular therapy for tendon
regeneration, Ortho-ATI.
The Company was very pleased to receive the
Innovation Excellence Award for Celgro at the
2016 Annual Western Australian Industry & Export
Awards. The Award is, “for outstanding
achievement or excellence in developing an
innovative commercial product, process, service
or technology. The Innovation Excellence Award
recognizes business that are contributing to the
advancement of the economy through their
innovation.” The finalists for this award category
were Austal Ltd, Proteomics International Pty Ltd
and Orthocell Ltd.
During the year the company presented at
numerous leading national and international
congresses further supporting the international
interest, safety and effectiveness of its tendon
regeneration product (Ortho-ATI) and cartilage
regeneration (Ortho-ACI) products, as well as its
pipeline products. Presentations included:
Previously released positive follow up data
for the treatment of recalcitrant tendon
injuries in the hip (2 year data) and the
elbow (4.5 year data) at GPCE meetings in
Brisbane, Melbourne and Sydney, Australia.
Previously released positive data around its
Ortho-ATI for The Treatment of Compensating
Occupationally Related Lateral Epicondylitis
at the Shoulder and Elbow Society of
Australia meeting in Darwin, Australia and at
the Combined Australian and New Zealand
Orthopaedic Association meeting in Cairns,
Australia.
Podium presentation on Autologous Tendon
Stem Cell Injection: The Regenerative
Approach of Tendinopathy at the ISAKOS
Congress in Shanghai, China to over 300
delegates including internationally
recognised leaders in the field of
tendinopathy. Previously released positive
data around Ortho-ATI treatment presented
at key session.
Positive data around Ortho-ACI treatment for
A Randomised Trial Investigating An
Accelerated Weight Bearing Program After
Autologous Chondrocyte Implantation: 2-
Annual Report for the Year Ended 30 June 2017
6
DIRECTORS’ REPORT
Year Outcomes at the Sports Medicine of
Australia congress in Melbourne, Australia.
8. Therapeutic Goods Administration
regulation
Numerous podium presentations showcasing
Orthocell’s regenerative medicine portfolio in
the US, UK, Hong Kong, Spain, China and
Australia.
In March 2017, Paul Anderson (CEO, Orthocell)
presented at the 29th Annual Roth Capital
Partners conference in California highlighting
the Company’s progress and confirming that
the Company is deal ready and positioned for
growth. Mr Anderson also presented during
extensive promotional roadshows in Perth,
Adelaide, Melbourne and Sydney (September
2016) and Hong Kong (February 2017).
4. Dividends
No dividends were paid during the current or
previous financial years and no dividends have
been declared subsequent to the financial year
end and up to the date of this report.
5. Significant changes in the state of
affairs
In December 2016 Orthocell raised $4,000,000 via
the placement of 10,000,000 shares at $0.40 per
share. The funds will be used to further progress
Orthocell’s technologies towards
commercialisation.
There were no other significant changes in the
state of affairs of the consolidated entity during
the financial year.
Orthocell Limited is subject to Australian federal
legislation administered by the Therapeutic Goods
Administration (TGA). Orthocell hold a
manufacturing license (MI-19052008-LI-002420-11)
provided by the TGA for tissue processing, on site
storage and release for supply of autologous
tenocytes and chondrocytes.
9. Remuneration report (audited)
This Remuneration Report outlines the director and
executive remuneration arrangements of the
Company and the consolidated entity in
accordance with the requirements of the
Corporations Act 2001 and its Regulations. For the
purposes of this report Key Management
Personnel (KMP) of the consolidated entity are
defined as those persons having the authority and
responsibility for planning, directing and
controlling the major activities of the Company
and the consolidated entity, directly or indirectly,
including any director (whether executive or
otherwise) of the parent Company.
Remuneration Philosophy
The performance of the Company depends upon
the quality of its directors and executives. To
prosper, the Company must attract, motivate and
retain highly skilled directors and executives.
To this end, the Company embodies the following
principles in its remuneration framework:
• Provide competitive rewards to attract high
6. Likely developments and expected
calibre executives.
results of operations
Having completed its successful capital raise in
December 2016, the Company will continue the
development and commercialisation of cell
therapies and related technologies. The
Company expects to complete and publish
clinical trials currently being conducted and
progress regulatory approvals.
7. Environmental regulation
The consolidated entity is not subject to any
significant environmental regulation under
Australian Commonwealth or State law.
•
Link executive rewards to shareholder value.
• A portion of executive remuneration may be
put ‘at risk’, dependent on meeting pre-
determined performance benchmarks.
• Where appropriate, establish performance
hurdles in relation to variable executive
remuneration.
Due to the early stage of development which the
Company is in, shareholder wealth is directly
affected by the Company share price, the
Company is not in a position to pay dividends. By
remunerating directors and Executives in part by
Annual Report for the Year Ended 30 June 2017
7
DIRECTORS’ REPORT
options, the Company aims to align the interests
of directors and executives with shareholder
wealth, thus providing individual incentive to
perform and thereby improving overall Company
performance and associated value.
Remuneration structure
and mix of remuneration commensurate with their
position and responsibilities within the Company
so as to:
Attract and retain high quality individuals.
Reward executives for Company
performance.
Non-executive director remuneration
Align the interest of executives with those of
Objective
The Board seeks to set aggregate remuneration at
a level which provides the Company with the
ability to attract and retain directors of the highest
calibre, whilst incurring a cost which is acceptable
to shareholders.
Structure
The maximum aggregate amount of fees that
can be paid to non-executive Directors is subject
to approval by shareholders at General Meetings
and is currently set at $450,000.
The amount of aggregate directors’ fees sought
to be approved by shareholders and the manner
in which it is apportioned amongst directors will
be reviewed annually. The Board may consider
advice from external consultants as well as the
fees paid to non-executive directors of
comparable companies when undertaking the
annual review process.
Each non-executive director receives a fee for
being a director of the Company. In addition, if a
director performs extra or special services beyond
their role as a director, the Board may resolve to
provide additional remuneration for such services.
Fees for directors are not linked to the
performance of the consolidated entity however,
to align all directors’ interests with shareholder
interests, directors are encouraged to hold shares
in the Company and may receive options. This
effectively links directors’ performance to the
share price performance and therefore to the
interests of shareholders. For this reason there are
no performance conditions prior to grant, but
instead an incentive to increase the value to all
shareholders.
Executive remuneration
Objective
The Company aims to reward executives (both
directors and Company executives) with a level
shareholders.
Link reward with the strategic goals and
performance of the Company.
Ensure total remuneration is competitive by
market standards.
Structure
Executive remuneration consists of both fixed and
variable (at risk) elements.
Fixed Remuneration
Objective
The level of fixed remuneration is set so as to
provide a base level of remuneration which is
both appropriate to the position and is
competitive in the market.
Fixed remuneration is reviewed annually or upon
renewal of fixed term contracts by the Board and
the process consists of a review of Company and
individual performance, relevant comparative
remuneration in the market and internal policies
and practices.
Structure
Executives are given the opportunity to receive
their fixed remuneration in a variety of forms
including cash and fringe benefits. It is intended
that the manner of payment chosen will be
optimal for the recipient without creating undue
cost for the Company.
Variable Remuneration
Objective
The objective of variable remuneration provided is
to reward executives in a manner which aligns this
element of remuneration with the creation of
shareholder wealth.
Structure
Variable remuneration may be delivered in the
form of a cash bonuses, or share options. During
the financial year ended 30 June 2017 the
Annual Report for the Year Ended 30 June 2017
8
DIRECTORS’ REPORT
Company granted options to Executives as
detailed in the tables below.
The remuneration of executives for the years
ended 30 June 2016 and 30 June 2017 are
detailed in the tables below.
Details of remuneration:
Amounts of remuneration
Details of the remuneration of the key
management personnel of the consolidated
entity are set out in the following tables.
Key Management personnel remuneration details:
The key management personnel of the
consolidated entity consisted of the following
directors of Orthocell Limited:
Dr Stewart Washer
-
Executive Chairman
Mr Paul Anderson
- Managing Director
Mr Matthew Callahan
- Non-Executive Director
Prof Lars Lidgren
-
Independent Non-Executive Director
Mr Qi Xiao Zhou
- Non-Executive Director
Short-term benefits
Cash salary
and fees
$
2016
Non-executive Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou
120,000
45,000
41,097
Bonus(1)
$
-
-
-
Executive Directors:
Mr P Anderson
Dr S Washer
326,000
150,000
75,000
-
30,970
-
Total
682,097
75,000
34,873
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long Service
Leave
$
-
-
3,903
-
-
-
5,962
-
5,962
Share-
based
payments
Total
$
Performance
related
%
120,000
45,000
45,000
0.0%
0.0%
0.0%
437,932
150,000
17.1%
0.0%
797,932
9.4%
$
-
-
-
-
-
-
Short-term benefits
Cash salary
and fees
$
2017
Non-executive Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou
120,000
45,000
41,100
Bonus(1)
$
-
-
-
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long Service
Leave
$
-
-
3,900
-
-
-
Share-
based
payments
Total
$
Performance
related
%
120,000
45,000
45,000
0.0%
0.0%
0.0%
$
-
-
-
Executive Directors:
Mr P Anderson
Dr S Washer
350,000
150,000
87,500
-
40,375
-
13,832
-
41,600
-
533,307
150,000
24.2%
0.0%
Total
706,100
87,500
44,275
13,832
41,600
893,307
14.5%
(1) Discretionary bonus as approved by the board.
Annual Report for the Year Ended 30 June 2017
9
DIRECTORS’ REPORT
Share-based compensation
During the year ended 30 June 2017 the following share-based payments of options were made to key
management personnel for nil consideration:
Grant date
13 Oct 2016
Exercise price
$0.624
Expiry date
12 Oct 2019
No. issued
250,000
Fair value per option
$0.166
Total fair value
$41,600
There were no share-based compensation payments to key management personnel during the year ended
30 June 2016.
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the Company held during the financial year by each director and other members
of key management personnel of the consolidated entity, including their personally related parties, is set out
below:
Balance
30/06/2016
Additions
Disposals/
Other
Balance
30/06/2017
Ordinary shares:
Mr Paul Anderson
Mr Matthew Callahan(1)
Professor Lars Lidgren
Dr Stewart Washer
Mr Qi Xiao Zhou
6,973,750
10,204,559
964,091
475,261
5,996,241
24,613,902
-
-
-
-
-
-
-
-
-
-
-
-
6,973,750
10,204,559
964,091
475,261
5,996,241
24,613,902
There were no shares issued as part of directors’ remuneration during the financial year.
Mr Callahan is a founder and director of Stone Ridge Ventures Pty Ltd which is the manager of the SRV Tech
(1)
Trust, a venture capital fund. Mr Callahan’s interest in shares is held indirectly through: a) SRV Custodians Pty Ltd as
trustee for the SRV Tech Trust which is the venture capital fund (574,026 shares) in respect of which AustralianSuper
Investments Pty Ltd, as trustee of the AustralianSuper Private Equity Trust is the sole unit holder; and b) SRV Nominees Pty
Ltd as trustee for the SRV Trust which is the carry trust for the SRV Tech Trust (40,154 shares). Mr Callahan is considered to
have a relevant interest in these shares due to his position as a director or shareholder of the respective trustee
companies and holds a beneficial interest in the SRV Trust.
Options / warrants holdings
The number options/warrants over ordinary shares in the Company held during the financial year by each
director and other members of key management personnel of the consolidated entity, including their
personally related parties, is set out below:
Balance
at the start
of year
Options
granted
Options
exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Options
vested &
exercisable
Options / warrants
over ordinary shares:
Mr Paul Anderson
Dr Stewart Washer
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
2,763,692
1,745,842
1,650,000
204,767
204,767
250,000(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,013,692
1,745,842
1,650,000
204,767
204,767
3,013,692
1,745,842
1,650,000
204,767
204,767
(1) During the year 250,000 options were issued to the Company’s Chief Financial Officer Nicole Telford, Mr Anderson’s
spouse.
There were no other transactions with key management personnel.
Annual Report for the Year Ended 30 June 2017
10
DIRECTORS’ REPORT
Employment Contracts
The Company has entered into employment
agreements with the following key employees
(each an Executive) on the following material
terms and conditions.
Mr Paul Anderson
Position:
Salary:
Short-term
incentive:
Notice
period:
Managing Director
$365,000pa plus superannuation
A bonus of a maximum of 25% of
Base Salary may be payable
each year subject to
achievement of key
performance indicators to be
agreed by the Board
6 months
Under the employment agreement:
either party may terminate the
(i)
employment agreement by providing the amount
of notice set out in the table above. The
Company may terminate the agreement without
notice (and without having to pay the Executive
an amount in lieu of notice) if the Executive
engages in serious or wilful misconduct;
the Executive is entitled to 20 days annual
(ii)
leave and 10 days personal leave per annum,
and to long service leave and other paid and
unpaid leave in accordance with applicable
legislation;
the Executive acknowledges that
(iii)
intellectual property created by the Executive will
be owned by the Company;
the Executive agrees to keep confidential
(iv)
information secret and confidential except to the
extent required by law; and
during the employment and for a period
(v)
of 12 months post-employment (or less if a court
finds 12 months to be invalid), the Executive
agrees not to carry on any business that
competes with the business of the Company,
solicit, employ or engage any director, employee
or contractor of the Company, or entice, provide
services to, or accept services from any customer,
contractor or supplier of the Company to
discontinue their relationship with the Company or
otherwise reduce the amount of business they do
with the Company. This restraint applies in
Australia and New Zealand, or if a court finds this
invalid, across, Australia, or if a court finds this
invalid, across Western Australia.
Consulting arrangements
The Company has entered into the consulting
agreements with the parties set out below under
which directors Mr Matthew Callahan and Dr
Stewart Washer are to provide services to the
Company. The key terms of the consulting
agreements are as follows:
Mr Matthew Callahan / Bocca Consulting Pty Ltd
Consulting fee
$1,500 per day
Consulting services:
Advisory services to the Company on general
matters relating to the Company’s business,
identifying, evaluating and developing new
opportunities, performing duties as a non-
executive director and any other duties as may
be delegated by the Board from time to time.
Dr Stewart Washer / Biologica Ventures Pty Ltd
Consulting fee
$150,000 per annum
Consulting services:
Services to the Company in relation to acting as
Chairman of the Company. The Company and Dr
Washer acknowledge that Dr Washer will be the
Executive Chairman of the Company pursuant to
this consultancy agreement.
The Company can terminate a consulting
agreement on 3 months’ notice. The Company
may terminate the agreement without notice
(and without having to pay the Consultant an
amount in lieu of notice) if the Consultant or the
Key Employee is guilty of gross misconduct, the
Key Employee dies, or becomes permanently
incapacitated or incapacitated for a period of 2
months in any 6 month period, the Consultant or
the Key Employee breaches the agreement and
does not rectify the breach, the Key Employee
ceases to be a Director, the Consultant or the Key
Employee fails to provide the services under the
agreement or breaches the covenants under the
agreement. The Consultant may terminate the
agreement by 6 months’ notice or by notice if the
Company breaches the agreement or fails to
observe any provision and has not adequately
Annual Report for the Year Ended 30 June 2017
11
DIRECTORS’ REPORT
responded to the breach or non-observance
within 15 days.
The consultants and the key employees
acknowledges that intellectual property created
by them in providing services under the
agreements will be owned by the Company, and
undertakes not to divulge any confidential
information except so far as may be necessary in
connection with the proper performance of their
obligations to the Company under the
agreement or with the consent of the Company.
Non-Executive Directors letters of appointment
Pursuant to letters of continuing appointment Mr
Callahan, Professor Lars Lidgren and Mr Qi Xiao
Zhou are continuing their appointments to the
Board as a Non-Executive Directors following
listing. Mr Callahan, Professor Lars Lidgren and Mr
Qi Xiao Zhou will each be paid a directors fee of
$45,000 per annum.
Mr Callahan, Professor Lars Lidgren and Mr Qi Xiao
Zhou are also entitled to fees or other amounts as
the Board determines where they perform special
duties or otherwise perform special duties or
otherwise perform services outside the scope of
the ordinary duties of a director. They may also be
reimbursed for all reasonable and properly
documented expenses incurred in performing
their duties.
This concludes the remuneration report, which has
been audited.
10. Directors’ and Officers’ deeds of
indemnity, access and insurance
The Company has entered into a deed of
indemnity, access and insurance with each of its
Directors and the Company Secretary. Under
these deeds, the Company agrees to indemnify
each officer to the extent permitted by law
against any loss which the officer may incur, or be
liable for, arising from or in connection with the
officer acting as an officer of the Company.
Under the deeds, the Company is also required to
enter into an insurance policy for the benefit of
the officer that insures the officer for all liability to
which the officer is exposed in providing services
in the capacity of an officer of the Company for
which insurance may be legally obtained. When
the policy expires, the Company must ensure that
it maintains an insurance policy for the officer
during the officer’s term of appointment that is on
terms no less favourable to the officer (subject to
the ability of the Company to reduce the scope
of the insurance to the extent it considers
reasonable, if it is determined that the cost of
maintaining it is such that it is not in the interests of
the Company to maintain it, or the Company is
unable to obtain the insurance on reasonable
terms).
11. Shares under option
At the date of this report the following options
and warrants are on issue:
Grant date
Expiry date Exercise
24/11/2014
19/11/2015
26/02/2016
13/10/2016
13/12/2016
13/12/2016
10/03/2017
19/06/2017
24/11/2017
19/11/2020
26/02/2019
12/10/2019
13/12/2019
13/12/2020
10/03/2020
19/06/2020
price
$0.62
$0.58
$0.56
$0.62
$0.65
$0.55
$0.59
$0.51
Number of
options/warrants
3,520,000
12,122,237
1,350,000
650,000
490,000
600,000
40,000
200,000
12. Shares issued on the exercise of
options
There were no shares of the Company issued
during the year ended 30 June 2017 and up to
the date of this report on the exercise of options
granted.
13. Indemnity and insurance of officers
The Company has indemnified the directors and
executives of the Company for costs incurred, in
their capacity as a director or executive, for
which they may be held personally liable, except
where there is a lack of good faith.
During the financial year, the Company paid a
premium in respect of a contract to insure the
directors and executives of the Company against
a liability to the extent permitted by the
Corporations Act 2001. The Company paid a
premium of $17,804 in respect of this policy.
14. Indemnity and insurance of auditor
The Company has not, during or since the end of
the financial year, indemnified or agreed to
indemnify the auditor of the Company or any
Annual Report for the Year Ended 30 June 2017
12
DIRECTORS’ REPORT
related entity against a liability incurred by the
auditor.
During the financial year, the Company has not
paid a premium in respect of a contract to insure
the auditor of the Company or any related entity.
15. Proceedings on behalf of the
Company
No person has applied to the Court under section
237 of the Corporations Act 2001 for leave to
bring proceedings on behalf of the Company, or
to intervene in any proceedings to which the
Company is a party for the purpose of taking
responsibility on behalf of the Company for all or
part of those proceedings.
16. Matters subsequent to the end of the
financial year
No matter or circumstance has arisen since 30
June 2017 that has significantly affected, or may
significantly affect the consolidated entity's
operations, the results of those operations, or the
consolidated entity's state of affairs in future
financial years.
17. Non-audit services
Details of the amounts paid or payable to the
auditor for non-audit services provided during the
financial year by the auditor are outlined in note
21 to the consolidated financial statements.
The directors are satisfied that the provision of
non-audit services during the financial year, by
the auditor (or by another person or firm on the
auditor's behalf), is compatible with the general
standard of independence for auditors imposed
by the Corporations Act 2001.
The directors are of the opinion that the services
as disclosed in note 21 to the consolidated
financial statements do not compromise the
external auditor's independence requirements of
the Corporations Act 2001 for the following
reasons:
• all non-audit services have been reviewed and
approved to ensure that they do not impact
the integrity and objectivity of the auditor; and
• none of the services undermine the general
principles relating to auditor independence as
set out in APES 110 Code of Ethics for
Professional Accountants issued by the
Accounting Professional and Ethical Standards
Board, including reviewing or auditing the
auditor's own work, acting in a management
or decision-making capacity for the Company,
acting as advocate for the Company or jointly
sharing economic risks and rewards.
18. Officers of the Company who are
former audit partners of PKF Mack
There are no officers of the Company who are
former audit partners of PKF Mack.
19. Auditor's independence declaration
A copy of the auditor's independence
declaration as required under section 307C of the
Corporations Act 2001 is set out on the following
page.
20. Auditor
PKF Mack continues in office in accordance with
section 327 of the Corporations Act 2001.
This report is made in accordance with a
resolution of directors, pursuant to section
298(2)(a) of the Corporations Act 2001.
On behalf of the directors
Mr Paul Anderson
Managing Director
13 September 2017
Perth
Annual Report for the Year Ended 30 June 2017
13
AUDITOR’S INDEPENDENCE DECLARATION
Annual Report for the Year Ended 30 June 2017
14
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
& OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2017
Revenue
Sales revenue
Cost of goods sold
Gross profit
Other revenue
Expenses
Research & development expenses
Administrative & general expenses
Sales & marketing expenses
Other expenses
Loss before income tax expense
Income tax benefit
Loss after income tax expenses
Other comprehensive income
Note
2017
$
2016
$
3
4
3
4
5
529,818
(438,137)
666,499
(497,589)
91,681
168,910
546,770
520,713
(3,914,268)
(1,784,946)
(1,064,651)
-
(6,763,865)
(3,369,040)
(1,601,923)
(983,660)
(27,638)
(5,982,261)
(6,125,414)
(5,292,638)
1,947,998
1,507,774
(4,177,416)
(3,784,864)
Other comprehensive income for the year, net of tax
-
-
Total comprehensive loss
(4,177,416)
(3,784,864)
Loss per share
Basic earnings per share
Diluted earnings per share
29
29
$
(0.043)
(0.043)
$
(0.043)
(0.043)
Note: the above statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes
Annual Report for the Year Ended 30 June 2017
15
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employment benefits
Other
Total current liabilities
Non-current liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Issue capital
Reserves
Accumulated losses
Total equity
Note
2017
$
2016
$
6
7
8
9
5,046,257
116,848
88,397
33,887
5,181,812
185,147
134,161
58,862
5,285,389
5,559,982
10
11
357,813
1,515,694
289,172
1,264,030
1,873,507
1,553,202
7,158,896
7,113,184
12
13
14
1,074,700
428,074
376,791
736,942
338,193
444,912
1,879,565
1,520,047
15
566,844
708,540
566,844
708,540
2,446,409
2,228,587
4,712,487
4,884,597
16
17
18
23,102,888
1,288,976
(19,679,377)
19,359,578
1,026,980
(15,501,961)
4,712,487
4,884,597
Note: the above statement of financial position should be read in conjunction with the accompanying
notes
Annual Report for the Year Ended 30 June 2017
16
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Issued
Capital
$
Share-based
payment
reserve
$
Accumulated
losses
Total equity
$
$
Balance at 1 July 2015
15,302,482
798,405
(11,717,097)
4,383,790
Loss after income tax expense
Other comprehensive income, net of tax
Total comprehensive income
Transactions with owners in their capacity
as owners:
Contributions of equity
Share equity costs
Issue of options
-
-
-
4,426,862
(369,766)
-
-
-
-
-
-
228,575
(3,784,864)
(3,784,864)
-
-
(3,784,864)
(3,784,864)
-
-
-
4,426,862)
(369,766)
228,575
Balance at 30 June 2016
19,359,578
1,026,980
(15,501,961)
4,884,597
Issued
Capital
$
Share-based
payment
reserve
$
Accumulated
losses
Total equity
$
$
Balance at 1 July 2016
19,359,578
1,026,980
(15,501,961)
4,884,597
Loss after income tax expense
Other comprehensive income, net of tax
Total comprehensive income
Transactions with owners in their capacity
as owners:
Contributions of equity
Share equity costs
Issue of options
-
-
-
4,000,000
(256,690)
-
-
-
-
-
-
261,996
(4,177,416)
(4,177,416)
-
-
(4,177,416)
(4,177,416)
-
-
-
4,000,000
(256,690)
261,996
Balance at 30 June 2017
23,102,888
1,288,976
(19,679,377)
4,712,487
Note: the above statement of changes in equity should be read in conjunction with the accompanying
notes
Annual Report for the Year Ended 30 June 2017
17
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers & employees (inclusive of GST)
Receipts from license fees and royalties
Grants received
R&D tax concession received
Interest received
Note
2017
$
2016
$
986,095
(6,527,317)
2,097
-
1,947,998
35,747
924,551
(5,938,693)
3,480
119,926
1,507,774
61,844
Net cash used in operating activities
28
(3,555,380)
(3,321,118)
Cash flows from investing activities
Payments for intangible assets
Payments for property, plant & equipment
Net cash used in investing activities
Cash flows from financing activities
Share subscription funds received
Share equity costs
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
(255,538)
(107,947)
(287,316)
(40,958)
(363,485)
(328,274)
4,000,000
(216,690)
4,426,862
(369,766)
3,783,310
4,057,096
135,555
5,181,812
407,704
4,774,108
Cash and cash equivalents at the end of the financial year
5,046,257
5,181,812
Note: the above consolidated statement of cash flows should be read in conjunction with the
accompanying notes
Annual Report for the Year Ended 30 June 2017
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the consolidated financial statements are
set out below. These policies have been consistently applied to all the years presented, unless otherwise
stated.
New, revised or amending Accounting Standards
and Interpretations adopted
The consolidated entity has adopted all of the
new, revised or amending Accounting Standards
and Interpretations issued by the Australian
Accounting Standards Board ('AASB') that are
mandatory for the current reporting period.
Any new, revised or amending Accounting
Standards or Interpretations that are not yet
mandatory have not been early adopted.
The adoption of these Accounting Standards and
Interpretations did not have any significant
impact on the financial performance or position
of the consolidated entity.
Basis of preparation
These general purpose consolidated financial
statements have been prepared in accordance
with Australian Accounting Standards and
Interpretations issued by the Australian
Accounting Standards Board ('AASB') and the
Corporations Act 2001, as appropriate for for-
profit oriented entities. These consolidated
financial statements also comply with
International Financial Reporting Standards as
issued by the International Accounting Standards
Board ('IASB').
The financial statements cover Orthocell Limited
as a consolidated entity consisting of Orthocell
Limited and its subsidiary. Orthocell Limited is a
listed public company limited by shares,
incorporated and domiciled in Australia.
A description of the nature of the consolidated
entity’s operations and its principal activities are
included in the directors’ report, which is not part
of the financial statements. The financial
statements were authorised for issue in
accordance with a resolution of directors on 12
September 2017. The directors have the power to
amend and reissue the financial statements.
Historical cost convention
The consolidated financial statements have been
prepared under the historical cost convention,
except for, where applicable, the revaluation of
available-for-sale financial assets, financial assets
and liabilities at fair value through profit or loss,
investment properties, certain classes of property,
plant and equipment and derivative financial
instruments.
Critical accounting estimates
The preparation of the consolidated financial
statements requires the use of certain critical
accounting estimates. It also requires
management to exercise its judgement in the
process of applying the consolidated entity's
accounting policies. The areas involving a higher
degree of judgement or complexity, or areas
where assumptions and estimates are significant
to the consolidated financial statements are
disclosed in note 2.
Parent entity information
In accordance with the Corporations Act 2001,
these consolidated financial statements present
the results of the consolidated entity only.
Supplementary information about the parent
entity is disclosed in note 26.
Going Concern
The Group has net assets of $4,712,487 (2016:
$4,884,597) as at 30 June 2017 and incurred a loss
of $4,177,416 (2016: $3,784,864) and net operating
cash outflow of $3,555,380 (2016: $3,321,118) for
the period ended 30 June 2017.
The Group’s ability to continue as a going
concern and meet its debts and future
commitments as and when they fall due is
dependent on the Company’s ability to raise
sufficient working capital to ensure the continued
implementation of the Group’s business strategy.
The financial report has been prepared on a
going concern basis. In arriving at this position the
directors have had regard to the fact that the
Company has, or in the directors’ opinion will
Annual Report for the Year Ended 30 June 2017
19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
have access to, sufficient cash to fund
administrative and other committed expenditure
for a period of not less than 12 months from the
date of this report.
Principles of consolidation
The consolidated financial statements incorporate
the assets and liabilities and results of Orthocell
Limited ('Company' or 'parent entity') and its
subsidiary Ausbiomedical Pty Ltd as at 30 June
2017. Orthocell Limited and its subsidiary together
are referred to in these consolidated financial
statements as the 'consolidated entity'.
Subsidiaries are all those entities over which the
consolidated entity has control. The consolidated
entity controls an entity when the consolidated
entity is exposed to, or has rights to, variable
returns from its involvement with the entity and
has the ability to affect those returns through its
power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date
on which control is transferred to the consolidated
entity. They are de-consolidated from the date
that control ceases.
Intercompany transactions, balances and
unrealised gains on transactions between entities
in the consolidated entity are eliminated.
Unrealised losses are also eliminated unless the
transaction provides evidence of the impairment
of the asset transferred.
Accounting policies of subsidiaries have been
changed where necessary to ensure consistency
with the policies adopted by the consolidated
entity.
The acquisition of subsidiaries is accounted for
using the acquisition method of accounting. A
change in ownership interest, without the loss of
control, is accounted for as an equity transaction,
where the difference between the consideration
transferred and the book value of the share of the
non-controlling interest acquired is recognised
directly in equity attributable to the parent.
Non-controlling interest in the results and equity of
subsidiaries are shown separately in the statement
of profit or loss and other comprehensive income,
statement of financial position and statement of
changes in equity of the consolidated entity.
Losses incurred by the consolidated entity are
attributed to the non-controlling interest in full,
even if that results in a deficit balance.
Where the consolidated entity loses control over a
subsidiary, it derecognises the assets including
goodwill, liabilities and non-controlling interest in
the subsidiary together with any cumulative
translation differences recognised in equity.
The consolidated entity recognises the fair value
of the consideration received and the fair value
of any investment retained together with any gain
or loss in profit or loss.
Operating segments
Operating segments are presented using the
'management approach', where the information
presented is on the same basis as the internal
reports provided to the Chief Operating Decision
Makers ('CODM'). The CODM is responsible for the
allocation of resources to operating segments
and assessing their performance.
Foreign currency translation
The consolidated financial statements are
presented in Australian dollars, which is Orthocell
Limited's functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into
Australian dollars using the exchange rates
prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the
settlement of such transactions and from the
translation at financial year-end exchange rates
of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
Revenue recognition
Revenue is recognised when it is probable that
the economic benefit will flow to the
consolidated entity and the revenue can be
reliably measured. Revenue is measured at the
fair value of the consideration received or
receivable.
Sale of goods
Sale of goods revenue is recognised at the point
of sale, which is where the customer has taken
delivery of the goods, the risks and rewards are
transferred to the customer and there is a valid
sales contract. Amounts disclosed as revenue are
net of sales returns and trade discounts.
Annual Report for the Year Ended 30 June 2017
20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Research and development tax incentive
The research and development tax incentives are
recognised at their fair value on receipt when all
conditions have been complied with. The
research and development tax incentives are
recognised as income tax benefits in the
consolidated statements of profit or loss and other
comprehensive income.
Interest
Interest revenue is recognised when it is received
or due to be received.
Other revenue
Other revenue is recognised when it is received or
when the right to receive payment is established.
Income tax
The income tax expense or benefit for the period
is the tax payable on that period's taxable
income based on the applicable income tax rate
for each jurisdiction, adjusted by changes in
deferred tax assets and liabilities attributable to
temporary differences, unused tax losses and the
adjustment recognised for prior periods, where
applicable.
Deferred tax assets and liabilities are recognised
for temporary differences at the tax rates
expected to apply when the assets are recovered
or liabilities are settled, based on those tax rates
that are enacted or substantively enacted,
except for:
When the deferred income tax asset or
liability arises from the initial recognition of
goodwill or an asset or liability in a transaction
that is not a business combination and that, at the
time of the transaction, affects neither the
accounting nor taxable profits; or
When the taxable temporary difference is
associated with interests in subsidiaries, associates
or joint ventures, and the timing of the reversal
can be controlled and it is probable that the
temporary difference will not reverse in the
foreseeable future.
Deferred tax assets are recognised for deductible
temporary differences and unused tax losses only
if it is probable that future taxable amounts will be
available to utilise those temporary differences
and losses.
The carrying amount of recognised and
unrecognised deferred tax assets are reviewed
each reporting date. Deferred tax assets
recognised are reduced to the extent that it is no
longer probable that future taxable profits will be
available for the carrying amount to be
recovered. Previously unrecognised deferred tax
assets are recognised to the extent that it is
probable that there are future taxable profits
available to recover the asset.
Deferred tax assets and liabilities are offset only
where there is a legally enforceable right to offset
current tax assets against current tax liabilities and
deferred tax assets against deferred tax liabilities;
and they relate to the same taxable authority on
either the same taxable entity or different taxable
entity's which intend to settle simultaneously.
Current and non-current classification
Assets and liabilities are presented in the
statement of financial position based on current
and non-current classification.
An asset is current when it is expected to be
realised or intended to be sold or consumed in
normal operating cycle, it is held primarily for the
purpose of trading, it is expected to be realised
within twelve months after the reporting period, or
the asset is cash or cash equivalent unless
restricted from being exchanged or used to settle
a liability for at least twelve months after the
reporting period. All other assets are classified as
non-current.
A liability is current when it is expected to be
settled in normal operating cycle, it is held
primarily for the purpose of trading, it is due to be
settled within twelve months after the reporting
period, or there is no unconditional right to defer
the settlement of the liability for at least twelve
months after the reporting period. All other
liabilities are classified as non-current.
Deferred tax assets and liabilities are always
classified as non-current.
Cash and cash equivalents
Cash and cash equivalents includes cash on
hand, deposits held at call with financial
institutions, other short-term, highly liquid
investments with original maturities of three
months or less that are readily convertible to
Annual Report for the Year Ended 30 June 2017
21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
known amounts of cash and which are subject to
an insignificant risk of changes in value.
Trade and other receivables
Trade receivables are initially recognised at fair
value and subsequently measured at amortised
cost using the effective interest method, less any
provision for impairment. Trade receivables are
generally due for settlement within 30 days.
Collectability of trade receivables is reviewed on
an ongoing basis. Debts which are known to be
uncollectable are written off by reducing the
carrying amount directly. A provision for
impairment of trade receivables is raised when
there is objective evidence that the consolidated
entity will not be able to collect all amounts due
according to the original terms of the receivables.
Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy
or financial reorganisation and default or
delinquency in payments (more than 60 days
overdue) are considered indicators that the trade
receivable may be impaired.
The amount of the impairment allowance is the
difference between the asset's carrying amount
and the present value of estimated future cash
flows, discounted at the original effective interest
rate. Cash flows relating to short-term receivables
are not discounted if the effect of discounting is
immaterial.
Other receivables are recognised at amortised
cost, less any provision for impairment.
Inventories
Inventory relates to work in progress which consists
of the costs of patients’ cells being held in the
laboratory awaiting delivery and implantation into
the patient. Inventory items are stated at the
lower of cost and net realisable value. Inventory
comprises direct materials, direct labour and an
appropriate proportion of variable and fixed
overhead expenditure based on normal
operating capacity.
As indicated in Note 2, when making the decision
whether inventory items should be carried forward
in the statement of financial position, or written
off, management must consider the likelihood of
whether each particular patient will proceed to
implantation. This requires a degree of estimation
and judgement based on historical sales
experience, the ageing of the inventories and
other demographic and market factors.
At present management consider that 2 years is a
reasonable period of time to hold inventory in the
statement of financial position for each patient
unless there is further particular information that
would indicate otherwise. This policy is reviewed
annually.
Net realisable value is the estimated selling price
in the ordinary course of business less the
estimated costs of completion and the estimated
costs necessary to make the sale.
Investments and other financial assets
Investments and other financial assets are initially
measured at fair value. Transaction costs are
included as part of the initial measurement,
except for financial assets at fair value through
profit or loss. They are subsequently measured at
either amortised cost or fair value depending on
their classification. Classification is determined
based on the purpose of the acquisition and
subsequent reclassification to other categories is
restricted.
Financial assets are derecognised when the rights
to receive cash flows from the financial assets
have expired or have been transferred and the
consolidated entity has transferred substantially all
the risks and rewards of ownership.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
are either: i) held for trading, where they are
acquired for the purpose of selling in the short-
term with an intention of making a profit; or ii)
designated as such upon initial recognition, where
they are managed on a fair value basis or to
eliminate or significantly reduce an accounting
mismatch.
Except for effective hedging instruments,
derivatives are also categorised as fair value
through profit or loss. Fair value movements are
recognised in profit or loss.
Available-for-sale financial assets
Available-for-sale financial assets are non-
derivative financial assets, principally equity
securities, which are either designated as
Annual Report for the Year Ended 30 June 2017
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
available-for-sale or not classified as any other
category. After initial recognition, fair value
movements are recognised in other
comprehensive income through the available-for-
sale reserve in equity. Cumulative gain or loss
previously reported in the available-for-sale
reserve is recognised in profit or loss when the
asset is derecognised or impaired.
Impairment of financial assets
The consolidated entity assesses at the end of
each reporting period whether there is any
objective evidence that a financial asset or group
of financial assets is impaired. Objective evidence
includes significant financial difficulty of the issuer
or obligor, a breach of contract such as default or
delinquency in payments, the lender granting to a
borrower concessions due to economic or legal
reasons that the lender would not otherwise do, it
becomes probable that the borrower will enter
bankruptcy or other financial reorganisation, the
disappearance of an active market for the
financial asset, or observable data indicating that
there is a measurable decrease in estimated
future cash flows.
The amount of the impairment allowance for
financial assets carried at cost is the difference
between the asset's carrying amount and the
present value of estimated future cash flows,
discounted at the current market rate of return for
similar financial assets.
Available-for-sale financial assets are considered
impaired when there has been a significant or
prolonged decline in value below initial cost.
Subsequent increments in value are recognised in
other comprehensive income through the
available-for-sale reserve.
Leases
The determination of whether an arrangement is
or contains a lease is based on the substance of
the arrangement and requires an assessment of
whether the fulfilment of the arrangement is
dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the
asset.
A distinction is made between finance leases,
which effectively transfer from the lessor to the
lessee substantially all the risks and benefits
incidental to ownership of leased assets, and
operating leases, under which the lessor
effectively retains substantially all such risks and
benefits.
Finance leases are capitalised. A lease asset and
liability are established at the fair value of the
leased assets, or if lower, the present value of
minimum lease payments. Lease payments are
allocated between the principal component of
the lease liability and the finance costs, so as to
achieve a constant rate of interest on the
remaining balance of the liability.
Leased assets acquired under a finance lease are
depreciated over the asset's useful life or over the
shorter of the asset's useful life and the lease term
if there is no reasonable certainty that the
consolidated entity will obtain ownership at the
end of the lease term.
Operating lease payments, net of any incentives
received from the lessor, are charged to profit or
loss on a straight-line basis over the term of the
lease.
Property, plant and equipment
Plant and equipment is stated at historical cost
less accumulated depreciation and impairment.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis
to write off the net cost of each item of property,
plant and equipment (excluding land) over their
expected useful lives as follows:
Leasehold improvements
Plant & equipment
Computer software
Furniture & fittings
Straight line
Diminishing value
Straight line
Diminishing value
40 yrs
3-7 yrs
2-3 yrs
10-15 yrs
The residual values, useful lives and depreciation
methods are reviewed, and adjusted if
appropriate, at each reporting date.
Leasehold improvements and plant and
equipment under lease are depreciated over the
unexpired period of the lease or the estimated
useful life of the assets, whichever is shorter.
An item of property, plant and equipment is
derecognised upon disposal or when there is no
future economic benefit to the consolidated
entity. Gains and losses between the carrying
amount and the disposal proceeds are taken to
profit or loss. Any revaluation surplus reserve
Annual Report for the Year Ended 30 June 2017
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
relating to the item disposed of is transferred
directly to retained profits.
Intangible assets
Intangible assets acquired as part of a business
combination, other than goodwill, are initially
measured at their fair value at the date of the
acquisition. Intangible assets acquired separately
are initially recognised at cost. Indefinite life
intangible assets are not amortised and are
subsequently measured at cost less any
impairment. Finite life intangible assets are
subsequently measured at cost less amortisation
and any impairment.
The gains or losses recognised in profit or loss
arising from the derecognition of intangible assets
are measured as the difference between net
disposal proceeds and the carrying amount of
the intangible asset. The method and useful lives
of finite life intangible assets are reviewed
annually. Changes in the expected pattern of
consumption or useful life are accounted for
prospectively by changing the amortisation
method or period.
Research and development
Research costs are expensed in the period in
which they are incurred. Development costs are
capitalised when it is probable that the project
will be a success considering its commercial and
technical feasibility, the consolidated entity is able
to use or sell the asset, the consolidated entity has
sufficient resources, and intent to complete the
development and its costs can be measured
reliably. Capitalised development costs are
amortised on a straight-line basis over the period
of their expected benefit, being their finite life of
10 years.
Patents and trademarks
Significant costs associated with patents and
trademarks are deferred and amortised on a
straight-line basis over the period of their
expected benefit, being their finite life of 20 years.
Capitalisation commences on application for the
patents or trademark. Amortisation commences
once the patent or trademark has been granted
over the remaining useful life of the patent. The
useful life is taken as 20 years from the date of
application. Patents and trademarks are sought
globally in various jurisdictions. If a patent or
trademark is unsuccessful the costs are then fully
written off. All patents and trademarks once
granted have an annuity commitment over the
term of their life and these are detailed in note 24.
Impairment of non-financial assets
Goodwill and other intangible assets that have an
indefinite useful life are not subject to amortisation
and are tested annually for impairment or more
frequently if events or changes in circumstances
indicate that they might be impaired. Other non-
financial assets are reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount
exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair
value less costs of disposal and value-in-use. The
value-in-use is the present value of the estimated
future cash flows relating to the asset using a pre-
tax discount rate specific to the asset or cash-
generating unit to which the asset belongs. Assets
that do not have independent cash flows are
grouped together to form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and
services provided to the consolidated entity prior
to the end of the financial year and which are
unpaid. Due to their short-term nature they are
measured at amortised cost and are not
discounted. The amounts are unsecured and are
usually paid within 30 days of recognition.
Employee benefits
Other long-term employee benefits
The liability for annual leave and long service
leave not expected to be settled within 12 months
of the reporting date is recognised in non-current
liabilities, provided there is an unconditional right
to defer settlement of the liability. The liability is
measured at current value and is not discounted
if the effect of discounting is immaterial.
Consideration is given to expected future wage
and salary levels, experience of employee
departures and periods of service.
Short-term employee benefits
Liabilities for wages and salaries, including non-
monetary benefits, annual leave and long service
leave expected to be settled within 12 months of
Annual Report for the Year Ended 30 June 2017
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the reporting date are recognised in current
liabilities in respect of employees' services up to
the reporting date and are measured at the
amounts expected to be paid when the liabilities
are settled.
Defined contribution superannuation expense
Contributions to defined contribution
superannuation plans are expensed in the period
in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits
are provided to employees.
Equity-settled transactions are awards of shares,
or options over shares, which are provided to
employees in exchange for the rendering of
services.
The costs of equity-settled transactions are
measured at fair value on grant date. Fair value is
independently determined using the Black-
Scholes option pricing model that takes into
account the exercise price, the term of the
option, the impact of dilution, the share price at
grant date and expected price volatility of the
underlying share, the expected dividend yield
and the risk free interest rate for the term of the
option, together with non-vesting conditions that
do not determine whether the consolidated entity
receives the services that entitle the employees to
receive payment. No account is taken of any
other vesting conditions.
The costs of equity-settled transactions are
recognised as an expense with a corresponding
increase in equity over the vesting period. The
cumulative charge to profit or loss is calculated
based on the grant date fair value of the award,
the best estimate of the number of awards that
are likely to vest and the expired portion of the
vesting period. The amount recognised in profit or
loss for the period is the cumulative amount
calculated at each reporting date less amounts
already recognised in previous periods.
Market conditions are taken into consideration in
determining fair value. Therefore any awards
subject to market conditions are considered to
vest irrespective of whether or not that market
condition has been met provided all other
conditions are satisfied.
If equity-settled awards are modified, as a
minimum an expense is recognised as if the
modification has not been made. An additional
expense is recognised, over the remaining vesting
period, for any modification that increases the
total fair value of the share-based compensation
benefit as at the date of modification.
If the non-vesting condition is within the control of
the consolidated entity or employee, the failure to
satisfy the condition is treated as a cancellation. If
the condition is not within the control of the
consolidated entity or employee and is not
satisfied during the vesting period, any remaining
expense for the award is recognised over the
remaining vesting period, unless the award is
forfeited.
If equity-settled awards are cancelled, it is treated
as if it has vested on the date of cancellation,
and any remaining expense is recognised
immediately. If a new replacement award is
substituted for the cancelled award, the
cancelled and new award is treated as if they
were a modification.
Fair value measurement
When an asset or liability, financial or non-
financial, is measured at fair value for recognition
or disclosure purposes, the fair value is based on
the price that would be received to sell an asset
or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date and assumes that the
transaction will take place either in the principle
market or in the absence of a principal market in
the most advantageous market.
Fair value is measured using the assumptions that
market participants would use when pricing the
asset or liability, assuming they act in their
economic best interest. For non-financial assets,
the fair value measurement is based on its highest
and best use. Valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair
value, are used, maximising the use of relevant
observable inputs and minimising the use of
unobservable inputs.
Assets and liabilities measured at fair value are
classified, into three levels, using a fair value
hierarchy that reflects the significance of the
Annual Report for the Year Ended 30 June 2017
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
inputs used in making the measurements.
Classifications are reviewed each reporting date
and transfers between levels are determined
based on a reassessment of the lowest level input
that is significant to the fair value measurement.
For recurring and non-recurring fair value
measurements, external valuers may be used
when internal expertise is either not available or
when the valuation is deemed to be significant.
External valuers are selected based on market
knowledge and reputation. Where there is a
significant change in fair value of an asset or
liability from one period to another, an analysis is
undertaken, which includes a verification of the
major inputs applied in the latest valuation and a
comparison, where applicable, with external
sources of data.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue
of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised when declared during
the financial year and no longer at the discretion
of the Company.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing
the profit attributable to the shareholders of the
Company, excluding any costs of servicing equity
other than ordinary shares, by the weighted
average number of ordinary shares outstanding
during the financial year, adjusted for bonus
elements in ordinary shares issued during the
financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used
in the determination of basic earnings per share
to take into account the after income tax effect
of interest and other financing costs associated
with dilutive potential ordinary shares and the
weighted average number of shares assumed to
have been issued for no consideration in relation
to dilutive potential ordinary shares.
Goods and Services Tax ('GST') and other similar
taxes
Revenues, expenses and assets are recognised
net of the amount of associated GST, unless the
GST incurred is not recoverable from the tax
authority. In this case it is recognised as part of the
cost of the acquisition of the asset or as part of
the expense.
Receivables and payables are stated inclusive of
the GST receivable or payable. The net amount of
GST recoverable from, or payable to, the tax
authority is included in other receivables or other
payables in the statement of financial position.
Cash flows are presented on a gross basis. The
GST components of cash flows arising from
investing or financing activities which are
recoverable from, or payable to the tax authority,
are presented as operating cash flows.
Commitments and contingencies are disclosed
net of GST recoverable from, or payable to, the
tax authority.
Annual Report for the Year Ended 30 June 2017
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are
not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting
period ended 30 June 2017. The consolidated entity has not assessed of the impact of these new or
amended Accounting Standards and Interpretations.
AASB No.
Title
AASB 9
Financial Instruments
AASB 2010-7
Amendments arising from Accounting Standards arising from AASB 9 (Dec
2010)
AASB 2014-1
Amendments to Australian Accounting Standards Part E - Financial Instruments
Application
date of
standard *
1 Jan 2018
Issue date
Dec 2014
1 Jan 2018
Sep 2012
Part E - 1 Jan
2018
Jun 2014
AASB 2014-5
Amendments to Australian Accounting Standard Arising From AASB 15
1 Jan 2018
Dec 2014
AASB 2014-7
Amendments to Australian Accounting Standard Arising From AASB 9 (Dec
2014)
1 Jan 2018
Dec 2014
AASB 2014-10
Amendments to Australian Accounting Standard - Sale of Contribution of
Assets Between Investors and its Associates or Joint Venture
1 Jan 2018
Dec 2014
AASB 2015-8
Amendments to Australian Accounting Standards – Effective Date of AASB 15
1 Jan 2018
Oct 2015
AASB 2015-10
Amendments to Australian Accounting Standards – Effective Date of
Amendments to AASB 10 and AASB 128.
1 Jan 2018
Dec 2015
AASB 2016-1
Amendments to Australian Accounting Standards – Recognition of Deferred
Tax Assets for Unrealised Losses [AASB 112]
1 Jan 2017
Feb 2016
AASB 2016-2
Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107
1 Jan 2017
Mar 2016
AASB 2016-3
Amendments to Australian Accounting Standards – Clarifications to AASB 15
1 Jan 2018
May 2016
AASB 2016-5
Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions [AASB 2]
1 Jan 2018
Jul 2016
AASB 2017-1
Amendments to Australian Accounting Standards – Transfers of Investment
Property, Annual Improvements 2014-2016 Cycle and Other Amendments
1 Jan 2018
Feb 2017
AASB 2017-2
Amendments to Australian Accounting Standards –Further Annual
Improvements2014-2016 Cycle
1 Jan 2017
Feb 2017
AASB 15
Revenues from Contracts with Customers
1 Jan 2018
Oct 2015
AASB 16
Leases
1 Jan 2019
Feb 2016
AASB
Interpretation 22
Foreign Currency Transactions and Advance Consideration
1 Jan 2018
Feb 2017
IFRIC 23
Uncertainty over Income Tax Treatments
1 Jan 2019
Jun 2017
* Annual reporting periods beginning after
Annual Report for the Year Ended 30 June 2017
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Critical accounting judgements,
estimates and assumptions
The preparation of the consolidated financial
statements requires management to make
judgements, estimates and assumptions that
affect the reported amounts in the consolidated
financial statements. Management continually
evaluates its judgements and estimates in relation
to assets, liabilities, contingent liabilities, revenue
and expenses. Management bases its
judgements, estimates and assumptions on
historical experience and on other various factors,
including expectations of future events, believed
to be reasonable under the circumstances. The
resulting accounting judgements and estimates
will seldom equal the related actual results. The
judgements, estimates and assumptions that have
a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities
(refer to the respective notes) within the next
financial year are discussed below.
Share-based payment transactions
The consolidated entity measures the cost of
equity-settled transactions with employees by
reference to the fair value of the equity
instruments at the date at which they are
granted. The fair value is determined by using the
Black-Scholes model taking into account the
terms and conditions upon which the instruments
were granted. The accounting estimates and
assumptions relating to equity-settled share-based
payments would have no impact on the carrying
amounts of assets and liabilities within the next
annual reporting period but may impact profit or
loss and equity.
Provision for impairment of receivables
The provision for impairment of receivables
assessment requires a degree of estimation and
judgement. The level of provision is assessed by
taking into account the recent sales experience,
the ageing of receivables, historical collection
rates and specific knowledge of the individual
debtor’s financial position.
Impairment of work in progress
Work in progress comprises patient cells taken via
biopsy and cryopreserved awaiting implantation
at the patients discretion at a future date.
Impairment of work in progress assessment
requires a degree of estimation and judgement.
While the patient cells held can be preserved
indefinitely the company has estimated that if the
patient has not proceeded with implantation
within 2 years from biopsy, resulting in a sale of the
product, the value of the work in progress is
impaired to nil.
Estimation of useful lives of assets
The consolidated entity determines the estimated
useful lives and related depreciation and
amortisation charges for its property, plant and
equipment and finite life intangible assets. The
useful lives could change significantly as a result
of technical innovations or some other event. The
depreciation and amortisation charge will
increase where the useful lives are less than
previously estimated lives, or technically obsolete
or non-strategic assets that have been
abandoned or sold will be written off or written
down. The useful life of patents and trademarks is
based on the period of the life of the patent or
trademark, which is usually 20 years.
Impairment of non-financial assets other than
goodwill and other indefinite life intangible assets
The consolidated entity assesses impairment of
non-financial assets other than goodwill and other
indefinite life intangible assets at each reporting
date by evaluating conditions specific to the
consolidated entity and to the particular asset
that may lead to impairment. If an impairment
trigger exists, the recoverable amount of the asset
is determined. This involves value-in-use
calculations, which incorporate a number of key
estimates and assumptions. Other qualitative
measures are also considered in the assessment of
impairment.
Employee benefits provision
As discussed in note 1, the liability for employee
benefits expected to be settled more than 12
months from the reporting date is recognised and
measured at current value and is not discounted
if the effect of discounting is immaterial. In
determining the present value of the liability,
estimates of attrition rates and pay increases
through promotion and inflation have been taken
into account.
Annual Report for the Year Ended 30 June 2017
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue
Sales revenue
Sale of goods
Other revenue
Interest
Commissions
Export market development grant
License fee & royalties
Currency gain
Other
2017
$
2016
$
529,818
529,818
35,747
-
-
143,793
3,321
363,909
546,770
666,499
666,499
61,844
191,894
119,926
146,005
-
1,044
520,713
Total revenue
1,076,588
1,187,212
Note 4. Expenses
Loss before income tax includes the following specific expenses:
Cost of sales
Cost of sales
Depreciation and amortisation
Depreciation – plant & equipment
Amortisation – patents & trademarks
Total Depreciation and amortisation
Net foreign exchange gain/(loss)
Net foreign exchange gain/(loss)
Rental expense relating to operating leases
Minimum lease payments
Employment expenses
Salaries & wages
Employment benefits
Superannuation expense
Consultants’ fees
Directors’ fees
Payroll & other taxes
Other employment costs
Share-based payments expense
Total employment expenses
Write off assets
Inventories
438,137
497,589
70,458
77,294
147,752
47,963
52,218
100,181
3,321
(4,327)
115,976
115,976
2,502,317
89,881
248,143
502,500
281,100
146,524
22,595
144,856
3,937,916
2,069,277
27,798
178,528
526,219
281,097
129,067
1,502
228,575
3,442,063
51,932
59,767
Annual Report for the Year Ended 30 June 2017
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Income tax expense
Income tax expense/(benefit)
Current tax
Deferred tax – origination and reversal of temporary differences
Aggregate income tax expense
2017
$
2016
$
(1,947,998)
-
(1,507,774)
-
(1,947,998)
(1,507,774)
Numerical reconciliation of income tax expense & tax at the statutory rate
Loss before income tax expense from continuing operations
(6,125,414)
(5,292,638)
Tax at the statutory tax rate of 27.5% (2016: 28.5%)
(1,684,489)
(1,508,402)
Tax effect amounts which are not deductible/(taxable) in
calculating taxable income:
Non-deductible items
Research and development expenditure
Research and development rebate received
Share-based payments
Sundry items
Income tax benefit not brought to account
15,581
365,270
(535,700)
-
39,835
1,799,503
-
12,443
258,988
(452,332)
(35,978)
68,573
1,656,708
-
Research and development tax benefit received
1,947,998
1,507,774
The following deferred tax balances have not been recognised:
Deferred tax balances not recognised at 27.5% (2016: 28.5%)
Provisions and accruals
Capital raising costs
Carried forward revenue losses
131,164
209,081
2,773,781
107,464
245,651
1,939,642
3,114,026
2,292,757
The tax benefits of the above deferred tax assets will only be obtained if:
(i)
The company derives future assessable income of a nature and an amount sufficient to enable the
benefits to be utilised;
(ii) The company continues to comply with the conditions for deductibility imposed by law; and
(iii) No changes in income tax legislation adversely affects the company in utilising the benefits.
Annual Report for the Year Ended 30 June 2017
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Cash and cash equivalents
Cash at bank
Reconciliation to cash and cash equivalents at the end of the financial year
The above figures are reconciled to cash and cash equivalents at the end
of the financial year as shown in the statement of cash flows as follows:
Balance as above
Cash and cash equivalents
Balance as per statement of cash flows
Note 7. Trade and other receivables
Trade receivables
Other receivables:
Sundry debtors
GST refund due
2017
$
2016
$
5,046,257
5,181,812
5,046,257
5,181,812
5,046,257
5,181,812
5,046,257
5,181,812
35,711
125,888
-
81,137
4,044
55,215
81,137
59,259
116,848
185,147
Impairment of receivables
There has been no impairment of receivables in the year ended 30 June 2017 (30 June 2016: $0).
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $10,940 as
at 30 June 2017 (30 June 2016: $15,779)
The consolidated entity did not consider a credit risk on the aggregate balances after reviewing credit
terms of customers based on recent collection practices.
The ageing of the past due but not impaired receivables are as follows:
0 to 3 months overdue
3 to 6 months overdue
Note 8. Inventories
Consumables – at cost
Work in progress – at cost
10,940
-
11,049
4,730
10,940
15,779
6,752
81,645
15,974
118,187
88,397
134,161
Annual Report for the Year Ended 30 June 2017
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Other
Prepayments
Note 10. Property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
2017
$
2016
$
33,887
58,862
33,887
58,862
272,502
(70,456)
202,056
523,896
(383,664)
140,232
41,464
(25,939)
15,525
272,502
(63,633)
208,869
400,981
(335,616)
65,365
37,760
(22,822)
14,938
357,813
289,172
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial
years are set out below:
Balance at 30 June 2015
Additions
Disposals
Depreciation
Balance at 30 June 2016
Additions
Disposals
Depreciation
Leasehold
improvements
$
Plant and
equipment
$
Furniture and
fittings
$
Total
$
215,682
-
-
(6,813)
208,869
-
-
(6,813)
76,377
27,556
-
(38,568)
65,365
135,394
-
(60,527)
14,070
3,450
-
(2,582)
14,938
3,705
-
(3,118)
306,129
31,006
-
(47,963)
289,172
139,099
-
(70,458)
Balance at 30 June 2017
202,056
140,232
15,525
357,813
Note 11. Intangibles
Patents and trademarks – at cost
Less: Accumulated amortisation
2017
$
2016
$
1,686,038
(170,344)
1,357,080
(93,050)
1,515,694
1,264,030
Annual Report for the Year Ended 30 June 2017
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Intangibles (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial
year are set out below:
Balance at 30 June 2015
Additions
Amortisation expense
Balance at 30 June 2016
Additions
Amortisation expense
Balance at 30 June 2017
Note 12. Trade and other payables
Trade payables
Other payables
Note 13. Employee benefits
Annual leave entitlements
Long service leave entitlements
$
1,044,802
271,446
(52,218)
1,264,030
328,958
(77,294)
1,515,694
2017
$
2016
$
891,021
183,679
648,795
88,147
1,074,700
736,942
254,174
173,900
196,840
141,353
428,074
338,193
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have
completed the required period of service and also those where employees are entitled to pro-rata
payments in certain circumstances. The entire amount is presented as current, since the consolidated entity
does not have an unconditional right to defer settlement. However, based on past experience, the
consolidated entity does not expect all employees to take the full amount of accrued leave or require
payment within the next 12 months.
Note 14. Other current liabilities
Accrued expenses
Revenue received in advance
235,091
141,700
303,212
141,700
376,791
444,912
Annual Report for the Year Ended 30 June 2017
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Other non-current liabilities
Revenue received in advance
Note 16. Equity – issued capital
2017
$
2016
$
566,844
708,540
566,844
708,540
2017
Shares
2016
Shares
2017
$
2016
$
Ordinary shares – fully paid
101,479,437
91,479,437
24,664,002
20,664,002
Share equity costs – ordinary shares
-
-
(1,561,114)
(1,304,424)
101,479,437
91,479,437
24,664,002
20,664,002
101,479,437
91,479,437
23,102,888
19,359,578
Movements in ordinary share capital
Details
Balance
Issue of shares
Issue of shares
Share issue costs
Balance
Issue of shares
Share issue costs
Balance
Date
Shares
Issue price
$
1 Jul 2015
82,500,000
15,302,482
11 Nov 2015
26 Feb 2016
8,776,597
202,840
-
$0.49
$0.49
4,326,862
100,000
(369,766)
30 Jun 2016
91,479,437
19,359,578
13 Dec 2016
10,000,000
-
$0.40
4,000,000
(256,690)
30 Jun 2017
101,479,437
23,102,888
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the
Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary
shares have no par value and the Company does not have a limited amount of authorised capital. The
Company does not have any externally imposed capital requirements.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and
upon a poll each share shall have one vote.
Annual Report for the Year Ended 30 June 2017
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Equity – issued capital (continued)
Capital Management Policy
The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going
concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain
an optimum capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity would look to raise capital when an opportunity to invest in a business or company
was seen as value adding relative to the current company's share price at the time of the investment. The
consolidated entity is not actively pursuing additional investments in the short term as it continues to
integrate and grow its existing businesses in order to maximise synergies.
Note 17. Share-based payment reserve
2017
Options
2016
Options
2017
$
2016
$
Share-based payment reserve
12,762,500
10,782,500
1,288,976
1,026,980
12,762,500
10,782,500
1,288,976
1,026,980
Movements in share-based payment reserve
Details
Date
No of
options
Total
$
Balance at 30 June 2015
9,432,500
798,405
Issue of options(1)
26 Feb 2016
1,350,000
228,575
Balance at 30 June 2016
10,782,500
1,026,980
Issue of options(2)
Issue of options(3)
Issue of options(4)
Issue of options(5)
Issue of options(6)
13 Oct 2016
12 Dec 2016
13 Dec 2016
10 Mar 2017
19 Jun 2017
650,000
490,000
600,000
40,000
200,000
1,980,000
108,160
80,164
40,000
5,612
28,060
261,996
Balance at 30 June 2017
12,762,500
1,288,976
Total value of share-based payments for the year is $261,996. Of this $221,996 has been recognised in the
Statement of Profit or Loss and Other Comprehensive Income and the remaining $40,000 in the Share Issue
Costs. The share based payments reserve is used to record the value of share based payments provided to
employees, including Key Management Personnel, as part of their remuneration, as well as consultants as
consideration for services in certain circumstances.
Annual Report for the Year Ended 30 June 2017
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Share-based payment reserve (continued)
For the options granted the valuation model inputs used to determine the fair value at the grant date are as
follows:
(1)
(2)
(3)
(5)
(6)
Grant date
Expiry date
Share price at grant date
Exercise price
Expected volatility
Dividend yield
Risk-free rate
Fair value at grant date
26 Feb 2016
26 Feb 2019
$0.365
$0.56
87%
0%
1.72%
$0.169
13 Oct 2016
12 Oct 2019
$0.435
$0.624
72%
0%
1.72%
$0.166
12 Dec 2016
12 Dec 2019
$0.440
$0.648
71%
0%
1.95%
$0.164
10 Mar 2017
10 Mar 2020
$0.420
$0.594
63%
0%
2.11%
$0.140
19 Jun 2017
19 Jun 2020
$0.350
$0.510
73%
0%
1.80%
$0.137
(4) On 13 December 2016 600,000 options were granted as part payment for the provision of services in
relation to a capital raising. The fair value of the service amounts to $240,000 as determined by
market expectations. Of this fair value $200,000 was settled in cash and therefore the options are
deemed to have a fair value of $40,000. The options have an exercise price of $0.55 and an expiry
date of 13 December 2020.
Set out below are summaries of options granted by the Company:
Exercise
price
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Grant date Expiry date
2016
03/08/2014 03/08/2017
24/11/2014 24/11/2017
19/11/2015 19/11/2020
26/02/2016 26/02/2019
$0.50
$0.62
$0.58
$0.56
5,912,500
3,520,000
-
-
-
-
12,122,237
1,350,000
9,432,500
13,472,237
Weighted average exercise price
$0.55
$0.58
2017
03/08/2014 03/08/2017
24/11/2014 24/11/2017
19/11/2015 19/11/2020
26/02/2016 26/02/2019
13/10/2016 12/10/2019
12/12/2016 12/12/2019
13/12/2016 13/12/2019
10/03/2017 10/03/2020
19/06/2017 19/06/2020
$0.50
$0.62
$0.58
$0.56
$0.62
$0.64
$0.55
$0.59
$0.41
5,912,500
3,520,000
12,122,237
1,350,000
-
-
-
-
-
-
-
-
-
650,000
490,000
600,000
40,000
200,000
22,904,737
1,980,000
Weighted average exercise price
$0.56
$0.58
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,912,500
3,520,000
12,122,237
1,350,000
22,904,737
$0.56
5,912,500
3,520,000
12,122,237
1,350,000
650,000
490,000
600,000
40,000
200,000
24,884,737
$0.57
At 30 June 2017 the remaining weighted average contractual life of the options is 745 days (2016: 1,001
days).
Annual Report for the Year Ended 30 June 2017
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Equity – accumulated losses
Accumulated losses at the beginning of the financial year
Loss after income tax expense for the year
2017
$
2016
$
15,501,961
4,177,416
11,717,097
3,784,864
Accumulated losses at the end of the financial year
19,679,377
15,501,961
Note 19. Financial instruments
(a)
Financial risk management
The Company’s principal financial instruments comprise cash.
The main purpose of these financial instruments is to fund expenditure on the Company’s operations. The
Company has various other financial assets and liabilities such as trade receivables and trade payables,
which arise directly from its operations. It is, and has been throughout the period under review, the
Company’s policy that no trading in financial instruments shall be undertaken.
Details of the significant accounting policies and methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which income and expenses are recognised, in respect of each
class of financial asset and financial liability are disclosed in Note 1.
(b)
Interest rate risk
At reporting date the Company had the following financial assets exposed to interest rate risk:
Cash(1)
(1)
The weighted average interest rate of cash is 0.69% (2016: 1.29%)
(c) Credit risk
2017
$
2016
$
5,046,257
5,181,812
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.
The consolidated entity’s maximum exposure to credit risk in relation to each class of financial asset is the
carrying amount of those assets as indicated in the Statement of Financial Position.
The consolidated entity has in place policies that aim to ensure that counterparties and cash transactions
are limited to high credit quality financial institutions and that the amount of credit exposure to one
financial institution is limited as far as is considered commercially appropriate.
Since the consolidated entity trades only with recognised third parties, there is no requirement for collateral.
(d)
Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The
group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the company’s reputation.
Annual Report for the Year Ended 30 June 2017
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Financial instruments (continued)
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements:
Less than 6
months
6 – 12
months
1 – 2 years
2 – 5 years
Over 5
years
$
$
$
$
$
Total
contractual
cash flows
$
Total
carrying
amount
$
As at 30 June 2017:
Trade & other payables
As at 30 June 2016:
Trade & other payables
1,126,112
952,207
(e) Net fair values
-
-
-
-
-
-
-
-
-
-
1,126,112
952,207
The carrying amount of financial assets and financial liabilities recorded in the financial statements
represents their respective net fair values, determined in accordance with the accounting policies disclosed
in Note 1.
(f)
Sensitivity analysis
The following tables summarise the sensitivity of the consolidated entity’s financial assets to interest rate risk.
Had the relevant variables, as illustrated in the tables, moved, with all other variables held constant, post-tax
profit/(loss) and equity would have been affected as shown. The analysis has been performed on the same
basis for 2016 and 2017. None of the Company’s financial liabilities are interest bearing.
Financial assets
30 June 2017
Cash
30 June 2016
Cash
Carrying
amount
$
Interest rate risk
-1%
Interest rate risk
1%
Net profit
$
Equity
$
Net profit
$
Equity
$
5,046,257
(50,462)
(50,462)
50,462
50,462
5,181,812
(51,818)
(51,818)
51,818
51,818
Note 20. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the
consolidated entity is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
2017
$
2016
$
793,600
44,275
13,832
41,600
757,097
34,873
5,962
-
893,307
797,932
Annual Report for the Year Ended 30 June 2017
38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 21. Remuneration of auditor
During the financial year the following fees were paid or payable for services provided by PKF Mack, the
auditor of the Company, its network firms and unrelated firms:
Audit services – PKF Mack
Audit or review of the consolidated financial statements
Other services – PKF Mack
Preparation of the tax return
Other matters
2017
$
2016
$
32,400
30,600
3,300
-
3,300
5,850
3,200
9,050
35,700
39,650
Note 22. Contingent liabilities
The consolidated entity has no contingent liabilities for the years ended 30 June 2017 or 30 June 2016.
Note 23. Contingent assets
The consolidated entity has no contingent assets for the year ended 30 June 2017 or 30 June 2016.
Note 24. Commitments
Patent annuity commitments
To maintain patent rights the following commitments will need to be met by
the Company:
Within one year
One to five years
More than five years
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Total commitments
42,716
175,439
346,505
32,351
174,515
432,068
564,660
638,934
115,157
333,068
-
151,126
603,141
36,917
448,225
791,184
1,012,885
1,430,118
Operating lease commitments includes contracted amounts for various equipment under non-cancellable
operating leases expiring within one to ten years and the current office and laboratory rental lease under
an operating lease expiring in five years.
Annual Report for the Year Ended 30 June 2017
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 25. Related party transactions
Parent entity:
Subsidiaries:
Orthocell Limited is the parent entity
Interests in subsidiaries are set out in note 26.
Key management personnel:
Disclosures relating to key management personnel are set out in note
20 and the remuneration report in the Directors' Report.
Loans to/from related parties:
There were no loans to or from related parties at the current and
previous reporting dates
Terms and conditions:
All transactions were made on normal commercial terms and
conditions and at market rates.
Note 26. Parent entity and interest in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-
owned subsidiaries in accordance with the accounting policy described in note 1:
Name of entity
Ausbiomedical Pty Ltd
Country of incorporation
Australia
2017
%
100
2016
%
100
Ausbiomedical Pty Ltd has no assets or liabilities and does not trade in its own right.
As the Company’s only subsidiary, Ausbiomedical Pty Ltd, does not trade or have any assets and liabilities,
the consolidated entity and parent entity disclosures are the same.
Note 27. Events after the reporting period
No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may
significantly affect the consolidated entity's operations, the results of those operations, or the consolidated
entity's state of affairs in future financial years.
Annual Report for the Year Ended 30 June 2017
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 28. Reconciliation of loss after income tax to net cash from operating activities
2017
$
2016
$
Loss after income tax expense for the year
(4,177,416)
(3,784,864)
Adjustments for:
Depreciation and amortisation
Share-based payments expensed
Inventory write-off
Change in operating assets and liabilities:
(Increase)/decrease in debtors
(Increase)/decrease in prepayments
(Increase)/decrease in inventories
(Increase)/decrease in accrued revenue
Increase/(decrease) in creditors
Increase/(decrease) in accruals
Increase/(decrease) in employee entitlements
Increase/(decrease) in unearned income
147,752
221,996
51,932
100,181
228,575
59,767
94,220
24,975
(6,167)
-
207,264
(68,121)
89,881
(141,696)
15,090
(54,399)
(43,262)
77,590
(14,961)
209,063
27,798
(141,696)
(3,555,380)
(3,321,118)
Note 29. Loss per share
Loss after income tax expense for the year
(4,177,416)
(3,784,864)
Weighted average number of shares used in calculating basic and
diluted loss per share
Shares
Shares
96,958,889
87,965,279
Options are considered to be potential ordinary shares and have only been included in the determination
of diluted loss per share to the extent to which they are dilutive.
At the date of this report has 101,479,437 ordinary shares on issue.
Note 30. Operating segments
The consolidated entity has identified its operating segments based on the internal reports that are
reviewed and used by the Chief Operating Decision Maker to make decisions about resources to be
allocated to the segments and assess their performance.
The financial information presented in the statement of profit or loss and other comprehensive income and
statement of financial position is the same as that presented to the chief operating decision makers.
The consolidated entity predominately operates in the regenerative medicine industry in Australia.
Annual Report for the Year Ended 30 June 2017
41
DIRECTORS’ DECLARATION
In the directors’ opinion:
•
•
•
•
the attached consolidated financial statements and notes thereto and the remuneration report
contained in the directors’ report comply with the Corporations Act 2001, the Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached consolidated financial statements and notes thereto comply with International
Financial Reporting Standards as issued by the International Accounting Standards Board as
described in note 1 to the consolidated financial statements;
the attached consolidated financial statements and notes thereto give a true and fair view of the
consolidated entity's financial position as at 30 June 2017 and of its performance for the financial
year ended on that date; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations
Act 2001.
On behalf of the directors
Mr Paul Anderson
Director
13 September 2017
Perth
Annual Report for the Year Ended 30 June 2017
42
INDEPENDENT AUDITOR’S REPORT
Annual Report for the Year Ended 30 June 2017
43
INDEPENDENT AUDITOR’S REPORT
Annual Report for the Year Ended 30 June 2017
44
INDEPENDENT AUDITOR’S REPORT
Annual Report for the Year Ended 30 June 2017
45
INDEPENDENT AUDITOR’S REPORT
Annual Report for the Year Ended 30 June 2017
46
CORPORATE GOVERNANCE STATEMENT
General
The Board of Directors of Orthocell Limited (the
“Company”) is responsible for the corporate
governance of the Company. The Board guides
and monitors the business and affairs of the
Company on behalf of the shareholders by whom
they are elected and to whom they are
accountable.
This statement sets out the main corporate
governance practices in place throughout the
financial year in accordance with 3rd edition of
the ASX Principles of Good Corporate
Governance and Best Practice
Recommendations.
Further information about the Company’s
corporate governance practices is set out on the
Company’s website at www.orthocell.com.au.
This Statement was approved by the Board of
Directors and is current as at 12 September 2017.
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR
MANAGEMENT AND OVERSIGHT
ASX Recommendation 1.1: a listed entity should
establish the functions reserved to the board and
those delegated to senior executives and disclose
those functions.
The Board has adopted a formal charter that
details the respective board and management
functions and responsibilities. A copy of this board
charter is available in the corporate governance
section of the Company's website at
www.orthocell.com.au.
The Company has complied with this
recommendation.
ASX Recommendation 1.2: a listed entity should
undertake appropriate checks before appointing
a person, or putting forward to security holders a
candidate for election as a director and provide
security holders with all material information
relevant to a decision on whether or not to elect
or re-elect a director.
The Company did not elect any new Directors
during the year. Information in relation to Directors
seeking reappointment is set out in the Directors
report and Notice of Annual General Meeting.
The Company has complied with this
recommendation.
ASX Recommendation 1.3: a listed entity should
have a written agreement with each Director and
senior executive setting out the terms of their
appointment.
The Company has in place written agreements
with each Director.
The Company has complied with this
recommendation.
ASX Recommendation 1.4: the company
secretary of a listed company should be
accountable directly to the board, through the
chair, on all matters to do with the proper
functioning of the board.
The Board Charter provides for the Company
Secretary to be accountable directly to the
board through the Chair.
The Company has complied with this
recommendation.
ASX Recommendation 1.5: a listed entity should:
•
•
•
•
have a diversity policy which includes the
requirement for the board to set
measurable objectives for achieving gender
diversity and assess annually the objectives
and the entity’s progress to achieving them;
disclose the policy or a summary of it;
disclose the measurable objectives and
progress towards achieving them; and
disclose the respective proportions of men
and women on the board and at each
level of management and the company as
a whole.
The Company has adopted a Diversity Policy
which is available in the corporate governance
section of the Company's website at
www.orthocell.com.au.
The Board considers that, due to the size, nature
and stage of development of the Company,
setting measurable objectives for the Diversity
Policy at this time is not appropriate. The Board will
consider setting measurable objectives as the
Company increases in size and complexity.
Annual Report for the Year Ended 30 June 2017
47
CORPORATE GOVERNANCE STATEMENT
As at 30 June 2017, the Company does not have
any female Board members (2016: nil). The
Company has 1 female (33%) in senior
management positions, (2016: 1, 33%). Of the
balance of the Company’s employees 76% are
female (2016: 73%). 56% (2016: 52%) of the
Company’s employees in total, including
Directors, are female.
The performance of executive Directors, including
the Managing Director, will be reviewed by the
Remuneration Committee. The Remuneration
Committee will conduct a performance
evaluation of the Executive Directors annually to
review performance against KPIs set for the
previous year, and to establish KPIs for the
forthcoming year.
The Company partly complies with this
recommendation.
Performance reviews were undertaken during the
reporting period.
ASX Recommendation 1.6: a listed entity should
disclose the process for evaluating the
performance of the board, its committees and
individual directors and whether a performance
evaluation was carried out during the reporting
period in accordance with that process.
The Chair has the overall responsibility for
evaluating the Board, any committees
established and, when appropriate, individual
directors on an annual basis.
The method and scope of the performance
evaluation will be set by the Chair and which may
include a Board self-assessment checklist to be
completed by each Director. The Chairperson
may also use an independent adviser to assist in
the review if deemed appropriate.
A performance review was undertaken during the
reporting period.
The Company has complied with this
recommendation.
ASX Recommendation 1.7: a listed entity should
have and disclose a process for periodically
evaluating the performance of its senior
executives and disclose in relation to each
reporting period where a performance evaluation
was undertaken in accordance with a process.
The Managing Director reviews the performance
of the senior executives. The Managing Director
conducts a performance evaluation of the senior
executives by meeting individually with each
senior executive on a yearly basis to review
performance against the senior executive’s
responsibilities as outlined in his or her contract
with the Company and against key performance
indicators (KPI’s) set for the senior executive set by
the Managing Director or the Board.
The Company has complied with this
recommendation.
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
ASX Recommendation 2.1: The board of a listed
entity should establish a nomination committee:
•
•
•
with at least three members the majority of
which are independent directors
chaired by an independent Director; and
disclose the charter of the committee, the
members of the committee and the number
of times the committee met throughout the
period and member attendance at those
meetings.
Given the present size and complexity of the
Company the Board has not constituted a
Nomination Committee with the full Board
carrying out the role of a Nomination Committee.
The Company has not complied with this
recommendation.
ASX Recommendation 2.2: a listed entity should
have and disclose a board skills matrix setting out
the mix of skills and diversity that the board
currently has or is looking to achieve in its
membership.
The Board has established a skills matrix. On a
collective basis the Board has the following skills:
Strategic expertise - ability to identify and critically
assess strategic opportunities and threats and
develop strategies.
Specific Industry knowledge - Experience in
regenerative medicine or other Biotech or related
sector.
Annual Report for the Year Ended 30 June 2017
48
CORPORATE GOVERNANCE STATEMENT
International experience – members of the Board
have an understanding the complexities of
operating in foreign jurisdictions, including a basic
knowledge of the general corporate, fiscal and
labour laws and regulations.
Accounting and finance - members of the Board
have experience in accounting and finance or
the ability to read and comprehend the
company’s accounts, financial material
presented to the board, financial reporting
requirements and an understanding of corporate
finance.
Risk management - Identify and monitor risks to
which the Company is, or has the potential to be
exposed to.
Experience with financial markets - Experience in
working in or raising funds from the equity or
capital markets.
Investor relations - Experience in identifying and
establishing relationships with Shareholders,
potential investors, institutions and equity analysts.
Government relations - Experience in dealing with
relevant Government authorities and regulators.
The Company has complied with this
recommendation.
ASX Recommendation 2.3: a listed entity should
disclose the names of the directors considered by
the board to be independent directors and
provide details in relation to the length of service
of each Director.
During the year ended 30 June 2017 the only
independent Director of the Company was
Professor Lars Lidgren.
Dr Stewart Washer and Mr Paul Anderson are
Executive Directors and are not considered to be
independent Directors as they are employed in
an executive capacity.
Mr Qi Xiao Zhou is a substantial shareholder and
as such is not considered to be an independent
Director.
Mr Matthew Callahan is a founder and director of
a substantial shareholder and as such is not
considered to be an independent director.
The appointment date of Directors is set out in the
Directors Report forming part of the Annual
Financial Statements.
The Company has complied with this
recommendation.
ASX Recommendation 2.4: the majority of the
board of a listed entity should be independent
directors.
The Board does not have a majority of directors
who are independent.
The Board considers that the composition of the
Board is adequate for the Company’s current size
and operations, and includes an appropriate mix
of skills and expertise, relevant to the Company’s
business. These skills include members with
significant experience as directors of public
companies, relevant experience in the
management and growth of businesses together
with extensive experience in the industry in which
Orthocell operates.
The Board will review its composition as the
Company’s circumstances change.
The Company has not complied with this
recommendation.
ASX Recommendation 2.5: The Chair of a listed
entity should be an independent director and, in
particular, should not be the same person as the
CEO of the entity.
The Executive Chair of the Board is Dr Stewart
Washer. The board considers that given its stage
of development it is beneficial that Dr Washer is
an Executive. The Board will consider the
appointment of an independent chair as the
Company increases in size and complexity.
The Managing Director is Paul Anderson.
The Company has not complied with this
recommendation.
ASX Recommendation 2.6: a listed entity should
have a program for inducting new directors and
provide appropriate professional development
opportunities.
The Board is responsible for providing new
directors with an induction to the Company and
for the program for providing adequate
Annual Report for the Year Ended 30 June 2017
49
CORPORATE GOVERNANCE STATEMENT
professional development opportunities for
directors and management.
No new directors were appointed during the year.
The Company has complied with this
recommendation.
PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY
ASX Recommendation 3.1: a listed entity should
establish a code of conduct and disclose the
code or a summary of the code.
The Company has established a Code of
Conduct as to the practices necessary to
maintain confidence in the Company’s integrity,
the practices necessary to take into account its
legal obligations and the reasonable
expectations of its stakeholders and the
responsibility and accountability of individuals for
reporting and investigating reports of unethical
practices.
A copy of the Company’s code of conduct is
available in the corporate governance section of
the Company's website at www.orthocell.com.au.
The Company has complied with this
recommendation.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL
REPORTING
ASX Recommendation 4.1: The Board of a listed
entity should establish an audit committee:
•
•
•
with at least three members, all of whom
are non-executive directors and a majority
of which are independent directors
chaired by an independent Director; and
disclose the charter of the committee, the
members of the committee and the number
of times the committee met throughout the
period and member attendance at those
meetings.
Given the present size and complexity of the
Company the Board has not constituted an Audit
Committee with the full Board carrying out the
role of an Audit Committee.
The qualifications of the members of the Board
are set out in the Directors report forming part of
the Annual Financial Statements.
The Company has not complied with this
recommendation.
ASX Recommendation 4.2: The Board of a listed
entity should, before it approves the entity’s
financial statements for a financial period, receive
from its CEO and CFO a declaration that, in their
opinion, the financial records of the entity have
been properly maintained and that the financial
statements comply with the appropriate
accounting standards and give a true and fair
view of the financial position and performance of
the entity and that the opinion has been formed
on the basis of a sound system of risk
management and internal control which is
operating effectively.
The Board has received the assurance required by
ASX Recommendation 4.2 in respect of the
financial statements for the half year ended 31
December 2016 and the full year ended 30 June
2017 from the Managing Director and the Chief
Financial Officer. Given the size and nature of the
Company’s operations the Board has not
received the assurance in respect of the quarterly
cash flow statements believing that the provision
of the assurance for the half and full year financial
statements is sufficient.
The Company partly complies with this
recommendation.
ASX Recommendation 4.3: a listed entity should
ensure that the external auditor attends its Annual
General Meeting and is available to answer
questions from security holders relevant to the
audit.
The external auditor attends the Annual General
Meeting and is available to answer questions from
shareholders relevant to the audit and financial
statements. The external auditor will also be
allowed a reasonable opportunity to answer
written questions submitted by shareholders to the
auditor as permitted under the Corporations Act.
The Company has complied with this
recommendation.
Annual Report for the Year Ended 30 June 2017
50
CORPORATE GOVERNANCE STATEMENT
PRINCIPLE 5: MAKE TIMELY AND BALANCED
DISCLOSURE
ASX Recommendation 5.1: a listed entity should
establish written policies designed to ensure
compliance with ASX Listing Rule disclosure
requirements and to ensure accountability at a
senior executive level for that compliance and
disclose those policies or a summary of those
policies.
The Company has established a continuous
disclosure policy which is designed to guide
compliance with ASX Listing Rule disclosure
requirements and to ensure that all Directors,
senior executives and employees of the
Company understand their responsibilities under
the policy. The Chairman, Managing Director
and Company Secretary act as the Company’s
Disclosure Officers who are responsible for
implementing and administering this policy. The
Disclosure Officers are responsible for all
communication with ASX and for making
decisions on what should be disclosed publicly
under this policy.
In accordance with the Company's continuous
disclosure policy, all information provided to ASX
for release to the market is posted to its website at
www.orthocell.com.au after ASX confirms an
announcement has been made.
A copy of the continuous disclosure policy is
available in the corporate governance section of
the Company's website at www.orthocell.com.au.
The Company has complied with this
recommendation.
PRINCIPLE 6: RESPECT THE RIGHTS OF
SHAREHOLDERS
ASX Recommendation 6.1: a listed entity should
provide information about itself and its
governance to investors via its website.
The Company’s website at www.orthocell.com.au
contains information about the Company’s
operations and technologies, Directors and
management and the Company’s corporate
governance practices, policies and charters. All
ASX announcements made to the market,
including annual and half year financial results are
posted on the website as soon as they have been
released by the ASX. The full text of all notices of
meetings and explanatory material, the
Company’s Annual Report and copies of all
investor presentations are posted on the website.
The Company has complied with this
recommendation.
ASX Recommendation 6.2: a listed entity should
design and implement an investor relations
program to facilitate effective two-way
communication with investors.
The Company’s Managing Director and
Chairman are the Company’s main contact for
investors and potential investors and make
themselves available to discuss the Company’s
activities when requested together with other
Directors as required. In addition to
announcements made in accordance with its
continuous disclosure obligations the Company,
from time to time, prepares and releases general
investor updates about the Company.
Contact with the Company can be made via
email addresses provided on the website.
The Company has complied with this
recommendation.
ASX Recommendation 6.3: a listed entity should
disclose the policies and processes it has in place
to facilitate and encourage participation at
meetings of security holders.
The Company encourages participation of
shareholders at any general meetings and its
Annual General Meeting each year. Shareholders
are encouraged to lodge direct votes or proxies
subject to the adoption of satisfactory
authentication procedures if they are unable to
attend the meeting.
The full text of all notices of meetings and
explanatory material are posted on the
Company’s website at www.orthocell.com.au.
The Company has complied with this
recommendation.
ASX Recommendation 6.4: a listed entity should
give security holders the option to receive
communications from, and send communications
to, the entity and its security register electronically.
Annual Report for the Year Ended 30 June 2017
51
CORPORATE GOVERNANCE STATEMENT
Contact with the Company can be made via
email addresses provided on the website.
The Company has complied with this
recommendation.
The Company’s share register provides a facility
whereby investors can provide email addresses to
receive correspondence from the Company
electronically and investors can contact the share
register via telephone, facsimile or email.
The Company has complied with this
recommendation.
PRINCIPLE 7: RECOGNISE AND MANAGE RISK
ASX Recommendation 7.1: The Board of a listed
entity should have a committee to oversee risk:
•
•
•
with at least three members, all of whom
are non-executive directors and a majority
of which are independent directors
chaired by an independent Director; and
disclose the charter of the committee, the
members of the committee and the number
of times the committee met throughout the
period and member attendance at those
meetings.
Given the present size and complexity of the
Company the Board has not constituted a Risk
Committee with the full Board responsible for risk
management.
The Company has not complied with this
recommendation.
ASX Recommendation 7.2: The Board or a
committee of the Board, of a listed entity should
review the entity’s risk management framework at
least annually to satisfy itself that it continues to be
sound and disclose in relation to each reporting
period whether such a review was undertaken.
The Board is responsible for the oversight of the
Company’s risk management and control
framework. Responsibility for control and design of
risk management is delegated to the appropriate
level of management within the Company with
the Managing Director being responsible to the
Board for the risk management and control
framework.
The Board conducted a review during the
reporting period.
ASX Recommendation 7.3: a listed entity should
disclose if it has an internal audit function and if it
does not have an internal audit function that fact
and the processes it employs for evaluating and
continually improving the effectiveness of risk
management and internal control processes.
Given the Company’s current size and level of
operations it does not have an internal audit
function.
The Board is responsible for the oversight of
the Company’s risk management and control
framework. Responsibility for control and
design of risk management is delegated to the
appropriate level of management within the
Company with the Managing Director being
responsible to the Board for the risk management
and control framework.
The Company has complied with this
recommendation.
ASX Recommendation 7.4: a listed entity should
disclose whether it has any material exposure to
economic, environmental and social sustainability
risks and if it does how it manages or intends to
manage those risks.
The Company has exposure to economic risks,
including general economy wide economic risks
and risks associated with the economic cycle.
There will a requirement in the future for the
Company to raise additional funding to pursue its
business objectives. The Company’s ability to
raise capital may be effected by these economic
risks.
The Company has in place risk management
procedures and processes to identify, manage
and minimise its exposure to these economic risks
where appropriate.
The Board currently considers that the Company
does not have any material exposure to
environmental risk.
The Board currently considers that the Company
does not have any material exposure to social
sustainability risk. The Company’s Corporate Code
of Conduct outlines the Company’s commitment
Annual Report for the Year Ended 30 June 2017
52
CORPORATE GOVERNANCE STATEMENT
to integrity and fair dealing in its business affairs.
The code sets out the principles covering
appropriate conduct in a variety of contexts and
outlines the minimum standard of behaviour
expected from employees when dealing with
stakeholders.
The Company has complied with this
recommendation.
PRINCIPLE 8: REMUNERATE FAIRLY AND
RESPONSIBLY
ASX Recommendation 8.1: The board of a listed
entity should establish a remuneration
committee:
• with at least three members the majority of
which are independent directors
• chaired by an independent Director; and
• disclose the charter of the committee, the
members of the committee and the number
of times the committee met throughout the
period and member attendance at those
meetings.
The Board has established a Remuneration
Committee and adopted a charter that sets out
the Remuneration Committee’s role and
responsibilities, composition and membership
requirements. Currently, Mr. Matthew Callahan
(chair), Dr Stewart Washer and Dr Lars Lidgren
serve on the Remuneration Committee.
A copy of the committee’s charter is available in
the corporate governance section of the
Company's website at www.orthocell.com.au.
Details of the number of meetings of the
committee and attendance at those meetings is
set out in the Directors Report.
The Company has not complied with this
recommendation.
ASX Recommendation 8.2: a listed entity should
separately disclose its policies and practices
regarding the remuneration of non-executive
directors and the remuneration of executive
directors and other senior executives.
The Company remunerates non-executive
Directors at a fixed fee for time, commitment and
responsibilities. In addition non-executive Directors
may be paid fees under consulting arrangements.
Remuneration for non-executive Directors is not
linked to individual performance. From time to
time the Company may, subject to shareholder
approval) grant options to non-executive
Directors. The maximum aggregate amount of
fees (including superannuation payments) that
can be paid to non-executive directors is subject
to approval by shareholders at a General
Meeting.
There are no termination or retirement benefits for
non-executive directors (other than for
superannuation).
Executive remuneration consists of a base salary
and performance incentives.
Short term performance incentives may be paid
in cash and may be subject to the successful
completion of performance hurdles agreed by
the board following recommendations from the
Remuneration Committee.
Long term performance incentives may include
options or other equity based products granted at
the discretion of the Board subject to obtaining
the relevant shareholder approvals. The grant of
equity based products is designed to recognise
and reward efforts as well as to provide additional
incentive to continue those efforts for the benefit
of the Company, and may be subject to the
successful completion of performance hurdles.
The Company has complied with this
recommendation.
ASX Recommendation 8.3: a listed entity which
has an equity based remuneration scheme should
have a policy on whether participants are
permitted to enter into transactions which limit the
economic risk of participating in the scheme and
disclose the policy or a summary of that policy.
A participant in an equity based remuneration
plan operated by the Company must not enter
into a transaction (whether through the use of
derivatives or otherwise) which limit the economic
risk of participating in the equity based
remuneration plan.
The Company has complied with this
recommendation.
Annual Report for the Year Ended 30 June 2017
53
ASX ADDITIONAL INFORMATION
Information in this section is as at 12 September 2017.
Substantial shareholders
The number of substantial shareholders and their
associates are set out below:
Shareholder
SRV Custodians Pty Ltd
Ming Hao Zheng
Mr Paul Frederick Anderson &
Ms Nicole Jane Telford
Mr Qixiao Xhou
Shares
9,530,382
6,795,415
6,403,335
5,996,241
JP Morgan Nominees Australia Limited
5,698,892
Mr Jia Xun Xu
5,168,276
Voting rights
Ordinary shares
On a show of hands, every member present at a
meeting in person or by proxy shall have one vote and
upon a poll each share shall have one vote.
Distribution of ordinary shares
Ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Shareholders
Holdings
267
1,808
687
872
87
187,730
5,073,535
5,710,115
24,834,964
65,673,093
Totals
3,721
101,479,437
On-market buy back
There is currently no on-market buy-back program for
any of Orthocell Limited’s listed securities.
Restricted securities
Nil
Securities Exchange
The Company was listed on the Australian Securities
Exchange on 12 August 2014.
Ordinary shares
20 largest shareholders
Shares held
%
SRV Custodians Pty Ltd
Ming Hao Zheng
Mr Paul Frederick Anderson &
Ms Nicole Jane Telford
Mr Qixiao Xhou
JP Morgan Nominees Australia
Limited
9,530,382
6,795,415
6,403,335
5,996,241
5,698,892
Mr Jia Xun Xu
5,168,276
National Nominees Limited
2,309,595
Veritas Securities Limited
Enerview Pty Ltd
Murdoch Ventures Pty Ltd
Diamonex Ltd
Argento Pty Ltd
SRV Nominees Pty Ltd
The University of Western
Australia
1,729,319
1,000,000
923,841
768,091
695,758
649,177
646,687
BNP Paribas Nominees Pty Ltd
640,270
HSBC Custody Nominees
(Australia) Limited
624,500
9.39
6.70
6.31
5.91
5.62
5.09
2.28
1.70
0.99
0.91
0.76
0.69
0.64
0.64
0.63
0.62
0.61
0.59
0.59
BT Portfolio Services Limited
Dr John Clifford Philpott &
Mrs Rebecca Anne Philpott
600,000
600,000
Dr John Clifford Philpott
600,000
0.59
Total
51,994,018
51.24
Balance of register
49,485,419
48.76
Grand total
101,479,437
100.00
Unmarketable parcels
568
554,246
Citicorp Nominees Pty Limited
614,239
Annual Report for the Year Ended 30 June 2017
54
ASX ADDITIONAL INFORMATION
Unquoted options and warrants
Options issued under the options plans total 6,850,000 and warrants issued total 12,122,237.
Voting rights
Options and warrants
No voting rights.
Distribution of unlisted options and warrants
Exercise price:
Expiry date:
Holding ranges:
1 – 5,000
5,001 – 10,000
Options
$0.62
24/11/17
Options
$0.56
26/02/19
Options
$0.62
12/10/19
Options
$0.64
12/12/19
Options
$0.55
13/12/19
Options
$0.59
10/03/20
Options
$0.41
19/06/20
Warrants
$0.58
19/11/20
Options held
(Holders)
Options held
(Holders)
Options held
(Holders)
Options held
(Holders)
Options held
(Holders)
Options held
(Holders)
Options held
(Holders)
Warrants held
(Holders)
nil
nil
nil
20,000
(2)
160,000
(6)
nil
nil
nil
10,001 – 100,000
520,000
(11)
100.001 & over
Totals
3,000,000
(8)
1,170,000
(6)
3,520,000
(19)
1,350,000
(14)
650,000
(3)
650,000
(3)
nil
nil
190,000
(2)
130,000
(2)
490,000
(4)
nil
nil
nil
600,000
(1)
600,000
(1)
nil
nil
40,000
(1)
nil
40,000
(1)
nil
nil
nil
200,000
(1)
200,000
(1)
nil
nil
273,834
(6)
11,848,403
(8)
12,122,237
(14)
All unlisted options were issued pursuant to the Company’s employee option acquisition plan or to directors pursuant to
shareholder approval.
Holders of great than 20% of unlisted warrants are listed below:
Warrant holder
Warrants held
%
Empery Asset Master Ltd
2,993,478
24.7
Annual Report for the Year Ended 30 June 2017
55